UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION





WASHINGTON,
      D.C. 20549





FORM
      10-K





x ANNUAL
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      fiscal year ended December 31, 2007





OR





o TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      transition period from ____________ to ____________





Commission
      file number: 333-105903





GENERAL
      STEEL HOLDINGS, INC.


(Exact
      name of registrant as specified in its charter)




NEVADA
            
            412079252(State
                or other jurisdiction
                of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)Kuntai
                International Mansion Building, Suite
                2315
              Yi
                No. 12 Chaoyangmenwai Avenue, Chaoyang
                District,
              Beijing,
                China
            
            100020(Address
                of principal executive offices)
            
            (Zip
                Code)




Incorp
      Services Inc.


3155
      East
      Patrick Lane


Suite
      1,
      Las Vegas, Nevada, 89120-3481


Tel:
      (702) 866-2500


(Name,
      address and telephone number for Agent for Service)





+86
      (10)
      5879-7346





(Registrant's
      telephone number, including area code)





Securities
      registered pursuant to Section 12(b) of the Act: none





Securities
      registered pursuant to Section 12(g) of the Act:




Title
                of each class
            Name
                of each exchange on which
                registeredCommon
                Stock, $ .001 par value per
                share
            Not
                applicable




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act. Yes o No x





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this


Form
      10-K. o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of "accelerated
      filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.




Large
      accelerated filer o Accelerated filer o Non-accelerated filer x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No
x





As
      of
      March 25, 2008, the aggregate market value of the registrant's common stock
      held
      by non-affiliates of the registrant was $85,943,720 based on the $ 8.00 as
      reported on the NYSE Arca.





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.




Class
            Outstanding
                at March 31,
                2008Common
                Stock, $ .001 par value per
                share
            34,861,365
                sharesDOCUMENTS
                INCORPORATED BY
                REFERENCEDocument
            Parts
                Into Which
                IncorporatedNone
            Not
                applicable









**TABLE
        OF CONTENT**


**PART
                  I**ITEM
                  1
              BUSINESS
              1ITEM
                  1A
              RISK
                  FACTORS
              5ITEM
                  1B
              UNRESOLVED
                  STAFF COMMENTS
              13ITEM
                  2
              PROPERTIES
              13ITEM
                  3
              LEGAL
                  PROCEEDINGS.
              14ITEM
                  4
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS.
              14**PART
                  II**ITEM
                  5
              MARKET
                  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                  PURCHASES OF EQUITY SECURITIES.
              15ITEM
                  6
              SELECTED
                  FINANCIAL DATA
              16ITEM
                  7
              MANAGEMENT
                  DISCUSSION AND ANALYSIS
              17ITEM
                  7A
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              34ITEM
                  8
              FINANCIAL
                  STATEMENTMENTS AND SUPPLEMENTARY DATA
              34ITEM
                  9
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURES.
              35ITEM
                  9A(T)
              CONTROLS
                  AND PROCEDURES.
              35ITEM
                  9B
              OTHER
                  INFORMATION.
              36**PART
                  III**ITEM
                  10
              DIRECTORS
                  AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
              36ITEM
                  11
              EXECUTIVE
                  COMPENSATION
              39ITEM
                  12
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS
              41ITEM
                  13
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              42ITEM
                  14
              PRINCIPAL
                  ACCOUNTING FEES AND SERVICES
              45**PART
                  IV**ITEM
              EXHIBITS
              45SIGNATURES
              47









**ITEM
      1. BUSINESS**





**Overview**




Our
      company was initially incorporated as “American Construction Company” (“ACC”) on
      August 5, 2002, in the State of Nevada.





On
      October 14, 2004, ACC, Northwest Steel Company, a wholly-owned Nevada subsidiary
      of ACC (“Merger Sub”), and General Steel Investment Co., Ltd., a British Virgin
      Islands company (“General Steel Investment”) entered into an Agreement and Plan
      of Merger pursuant to which ACC acquired General Steel Investment through a
      merger between Merger Sub and General Steel Investment and then merger of Merger
      Sub with ACC, and its 70% ownership in its subsidiary Tianjin Daqiuzhuang Metal
      Sheet Co., Ltd., a PRC company of limited liability (“Daqiuzhuang Metal”) in
      exchange for shares of ACC’s common stock.





Effective
      March 7, 2005, ACC changed its name to “General Steel Holdings, Inc.” (“General
      Steel”).





On
      May
      18, 2007, General Steel entered into a Purchase Agreement with Victory New
      Holdings Limited (“Victory New”), a British Virgin Islands registered company
      under the control of the Company’s Chairman, CEO and majority shareholder,
      Zuosheng Yu (aka Henry Yu), to acquire Victory New’s 30% interest in Daqiuzhuang
      Metal. General Steel agreed to issue to Victory New an aggregate of 3,092,899
      shares of its Series A Preferred Stock with a fair value of $8,374,000, and
      these shares of Series A Preferred Stock carry a voting power of 30% of the
      combined voting power of General Steel’s common and preferred stock while
      outstanding. As a result of the acquisition, General Steel has increased its
      equity interest in Daqiuzhuang Metal from 70% to 100%, and Daqiuzhuang Metal
      is
      a wholly owned subsidiary of the Company.





On
      April
      27, 2007, Daqiuzhuang Metal and Baotou Iron and Steel Group Co., Ltd. ("Baotou
      Steel") entered into an Amended and Restated Joint Venture Agreement (the
      "Agreement"), amending the Joint Venture Agreement entered into on September
      28,
      2005 ("Original Joint Venture Agreement"). The Agreement increased Daqiuzhuang
      Metal's ownership interest in the Joint Venture to 80%. The joint venture
      company’s name is Baotou Steel - General Steel Special Steel Pipe Joint Venture
      Company Limited a PRC company of limited liability (referred to as “Baotou Steel
      Pipe Joint Venture”). Baotou Steel Pipe Joint Venture obtained its business
      license from the PRC on May 25, 2007 and started its normal operation in July
      2007.





On
      May
      18, 2007, Daqiuzhuang Metal established Yangpu Shengtong Investment Co., Ltd.
      (“Yangpu Investment”) and injected registered capital totaling RMB100,000,000,
      or approximately $13,030,000, into the investment. The total registered capital
      of Yangpu Investment is RMB110,000,000, or approximately $14,333,000, and
      Daqiuzhuang Metal has a 99.3% ownership interest in Yangpu Investment.





Qiu
      Steel
      Investment Co., Ltd. (“Qiu Steel Investment”) was founded on June 1, 2006. In
      June 2007, Yangpu Investment agreed to invest RMB148,000,000, or approximately
      $19,284,400, through a capital injection and equity transfer with former
      shareholders. The total registered capital of Qiu Steel Investment is
      RMB150,000,000, or approximately $19,545,000. As a result of the above mentioned
      equity transaction, Yangpu Investment acquired 98.7% equity of Qiu Steel
      Investment making Qiu Steel Investment a subsidiary of Yangpu Investment and
      Daqiuzhuang Metal.





Yangpu
      Investment and Qiu Steel Investment are Chinese registered limited liability
      companies with a legal structure similar to a limited liability company
      organized under state laws in the United States of America. Those two companies
      were formed to acquire other businesses.





On
      June
      15, 2007, General Steel and Shaanxi Longmen Iron and Steel (Group) Co., Ltd.,
      a
      PRC company of limited liability (“Longmen Group”), signed an agreement to form
      Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”). The parties
      agreed to make the effective date of the transaction June 1, 2007. General
      Steel
      contributed RMB300 million or approximately $39,450,000 through its
      subsidiaries, Daqiuzhuang Metal and Qiu Steel Investment., to the Longmen Joint
      Venture. General Steel and Longmen Group own a 60% and 40% ownership interest,
      respectively, in Longmen Joint Venture. The Longmen Joint Venture obtained
      its
      business license from the PRC on June 22, 2007. The total registered capital
      of
      Longmen Joint Venture is RMB500 million or approximately $65.8 million. Pursuant
      to the joint venture agreement, Longmen Group contributed land, buildings,
      iron
      making, steel making, and steel rolling facilities whereas General Steel
      contributed cash through its subsidiaries Daqiuzhuang Metal and Qiu Steel
      Investment to the Longmen Joint Venture. In
      the
      Longmen Joint Venture, Longmen Group has a 40% ownership interest, Daqiuzhuang
      Metal has a 32% ownership interest and Qiu Steel Investment has a 28% ownership
      interest, respectively. In total, General Steel controls approximately 60%
      of
      the Lo ngmen
      Joint Venture through Daqiuzhuang Metal and Qiu Steel Investment.





On
      September 24, 2007, Longmen Joint Venture further acquired 74.92% ownership
      interest in Environmental Protection Industry Development Co., Ltd., a PRC
      company of limited liability (“EPID”), for RMB18,080,930, approximately
      $2,380,000, and a 36% equity interest in Hualong Fire Retardant Materials Co.,
      Ltd., a PRC company of limited liability (“Hualong”), for RMB3,287,980,
      approximately $430,000. The parties agreed to make the effective date of the
      transaction July 1, 2007.




On
      December 12, 2007, Longmen Joint Venture entered into an investment agreement
      with Hancheng Tongxing Metallurgy Co., Ltd., a PRC company of limited liability
      (“Tongxing””), to contribute 217,478.47 square meters of land use rights at an
      appraised value of approximately RMB 30,227,333 or approximately $4.1million.
      Pursuant to the agreement, the land will be converted into shares valued at
      RMB
      22,744,419 or approximately $3.1million, which will give Longmen Joint Venture
      a
      22.76% stake in Tongxing.




1




The
      following table reflects the Company’s current organization structure:









**Our
      Operating Subsidiaries and Products**





**Daqiuzhuang
      Metal**





Daqiuzhuang
      Metal started its operation in 1988 and was incorporated under its current
      form
      on August 18, 2000 in Jinghai county, Tianjin municipality, China. Daqiuzhuang
      Metal is a Sino-foreign joint venture with an operating term that will expire
      on
      June 24, 2024, at which point we expect to file a request for an extension
      of
      the term permitted under the then applicable laws.





Daqiuzhuang
      Metal’s core business is the manufacturing of high quality hot-rolled carbon and
      silicon steel sheets which are mainly used in the production of tractors,
      agricultural vehicles, shipping containers and in other specialty markets.
      Daqiuzhuang Metal uses a traditional rolling mill production sequence, such
      as
      heating, rolling, cutting, annealing, and flattening to process coil into steel
      sheets. The sheet sizes are approximately 2,000 mm (length) x 1,000 mm (width)
      x
      0.75 to 2.0 mm (thickness). Limited size adjustments can be made to meet order
      requirements. “Qiu Steel” is the registered trademark under which we sell these
      products.




Daqiuzhuang
      Metal currently has ten steel sheet production lines processing approximately
      400,000 tons of 0.75-2.0 mm hot-rolled carbon and silicon steel sheets per
      year,
      maintaining, by our estimates, an approximately 50% market share of all
      hot-rolled steel sheets used in the production of light agricultural vehicles
      in
      China, out of which 150,000 tons of production capacity were added since
      mid-March 2006. The raw materials we use to produce our hot-rolled sheets are
      hot-rolled steel coils which we purchase from a variety of local sources. There
      are many sources of hot-rolled steel coil in Tianjin and neighboring Hebei
      province. There is little seasonality in the demand for the products
      manufactured by Daqiuzhuang Metal; however, the first quarter typically shows
      the least amount of demand attributable to the Chinese New Year holiday. In
      2005, to comply with a Daqiuzhuang County environmental clean-up campaign,
      we
      invested $94,000 to remodel our industrial water recycling system. We do not
      believe future costs to environmental compliance will be material to our
      financial position. To maintain our market share, we allow some customers to
      purchase on credit which contributes to our accounts receivable balance. For
      the
      hot-rolled steel coil which we purchase as the feedstock for our flat-rolled
      sheets, we generally pay in arrears. However, when based on our experience
      in
      the market we feel that feedstock prices are at a low point, we will pre-pay
      for
      a large amount to lock-in the low price. At
      Daqiuzhuang Metal, steel shipments for the year ended December 31, 2007,
      decreased 5.5% to 322,912 tons from 341,702 tons the prior year.




2





Until
      2007, Daqiuzhuang Metal was our only production facility and accounted for
      100%
      of our operating revenue.





**Baotou
      Steel**





Baotou
      Steel Pipe Joint Venture is located at Kundulun District, Baotou city, Inner
      Mongolia provin ce,
      China. It produces and sells spiral-weld steel pipes and primarily serves
      customers in the oil, gas and petrochemical markets. The raw materials used
      to
      produce the pipes are hot-rolled carbon and low alloy steel coils and strips.
      Pipes produced have a diameter ranging from 219-1240 mm; a wall thickness
      ranging from 6-13mm; and a length ranging from 6-12 m. The facility has four
      production lines with current annual production capacity of 100,000 tons.
      Production capacity will increase to 600,000 tons by the end of 2009. We believe
      there is only slight seasonality in the demand for products manufactured by
      Baotou Steel Pipe Joint Venture. We believe the first quarter will likely show
      the lightest demand owing to a slowing in construction projects due to weather
      impairments and the Chinese New Year holiday. At
      Baotou
      Steel Pipe Joint Venture, 13,489 tons of steel shipments were made during the
      period of July 2007 through December 31, 2007, Baotou Steel Pipe Joint Venture
      began sales efforts in July and this is the first year to include their revenue
      in our yearly financial results.





**Longmen
      Joint Venture**





Longmen
      Joint Venture is
      located in Hancheng city, Shaanxi province. Longmen Joint Venture is the largest
      inte grated
      steel producer in Shaanxi province, China. It uses iron ore and coke as primary
      raw materials for steel production. Longmen Joint Venture has annual crude
      steel
      production capability of 2.5 million tons. It produces pig iron, crude steel,
      reinforced bars (rebar) and high-speed wires which
      are
      sold mostly in the domestic market .
      Approximately 90% of finished production is devoted to rebar. Rebar produced
      has
      a diameter range from 12-32mm and a length range of 6-12m. Overall, there is
      little seasonality in the demand for the products manufactured by Longmen Joint
      Venture. We follow the traditional industry pattern for demand of construction
      products, whereby the third quarter typically shows greatest amount of demand
      owing to favorable summer weather conditions for construction and the first
      quarter typically shows least amount of demand owing to a slowing in
      construction due to weather impairments and the Chinese New Year holiday. In
      2005, our joint venture partner, the Longmen Group, received ISO 14001
      certification for is overall environmental management system. We
      do not
      believe future costs to environmental compliance will be material to our
      financial position. At
      Longmen Joint
      Venture, 1,440,522 tons of steel shipments were made during the period from June 2007 through December 31,
      2007 . Longmen
      Jo int
      Venture is also engaged in other business activities, most of which are related
      to steel manufacturing, such as the production of coke and iron ore pellets
      from
      taconite. Additional business activities include transportation services, real
      estate services and hotel operations. These operations are all located in
      Shaanxi province and primarily serve regional customers in the construction
      industry.





The
      purposes of the Longmen Joint Venture are, among others, to produce and sell
      construction steel and to improve our product quality, production capacity
      and
      competitiveness by adopting advanced technology in the production of steel
      products. The Longmen Joint Venture has an aggregate annual production capacity
      of 2.5 million tons of crude steel. Approximately 90% of production capacity
      is
      devoted to producing construction steel products including re-bars and round
      bars.





As
      is
      common practice in the construction steel products industry, most customers
      pay
      for products in advance. At Longmen Joint Venture, most customers pay
      approximately 2 weeks in advance. This allows us to maintain a low accounts
      receivable balance. Additionally, since we require our customers to place their
      orders at the beginning of each month and there is little unpredicted volume
      variance in these orders, we are able to keep a minimum amount of inventory
      for
      backlog. For the majority of our raw materials purchases, we generally pay
      in
      arrears.





**Marketing
      and Customers** ****





We
      sell
      our products primarily to distributors. We typically collect payment from these
      distributors in advance. Our marketing efforts are mainly directed toward those
      customers who have exacting requirements for on-time delivery, customer support
      and product quality. We believe that our enhanced product quality, delivery
      capabilities, and our emphasis on customer support and product planning are
      critical factors in our ability to serve this segment of the
      market.




3





Our
      products produced at Daqiuzhuang Metal including hot-rolled carbon and silicon
      sheets are primarily used by domestic manufacturers of light agricultural
      vehicles: small, motorized, 3-wheel vehicles with a payload from 1,650 to 4,400
      lbs. (750 to 2,000 kgs), retailing between $1,200 and $1,800 (RMB10,000 to
      15,000). These
      inexpensive agriculture vehicles are targeted to the low-income farming
      populations in the rural areas ofChina.
      International non-government organizations estimate that approximately 60%-80%
      of China’s populationof
      1.3
      billion people is comprised of low-income rural farmers.





Based
      on
      the production and sales figures supplied by our customers producing economy
      agricultural vehicles, we estimate that we supply approximately 50% of the
      nationwide demand for hot-rolled steel sheets used in this niche
      market.





Our
      products produced at Baotou Steel Pipe Joint Venture are spiral-weld steel
      pipes
      used in the energy sector to transport natural gas, oil and stream. Pipes
      produced have a diameter ranging from 219-1240 mm; a wall thickness ranging
      from
      6-13mm; and a length ranging from 6-12 m. China’s western region is a
      resource-rich area. Our products are used to transport oil and natural gas
      extracted from this region to the coastal metropolitan areas.





Our
      products produced at Longmen Joint Venture are mainly
      rebar and r ound
      bars
      used in the construction industry and infrastructure. Shaanxi province has
      been
      designated by the central government as the bridgehead point for development
      into China’s western region. Development of the western region is one of the top
      five economic priorities of the central government, as indicated by the national
      five-year economic plan. By our estimates, annual demand for steel in Shaanxi
      province is 8 million tons. The majority of demand comes from the southern
      part
      of the province centered around Xi’an, the province capital. This demand is
      principally driven by large construction and infrastructure projects, of which
      our products are key building components. Due to our close proximity to Xi’an
      (180 km) and lack of major a competitor within a 250 km radius, we estimate
      we
      have an approximate 70% market share in Xi’an and the surrounding area.





**Competitors**





We
      compete with both SOEs and privately owned steel manufacturers. While we believe
      that our price and quality are superior to other manufacturers. Many of our
      competitors are better capitalized, more experienced, and have deeper ties
      in
      the Chinese marketplace. We consider there to be the following eight major
      competitors of similar size, production capability and product line in the
      market place competing against our three operating subsidiaries as
      indicated:




·
      Competitors of Daqiuzhuang Metal include:
      Tianjin No. 1 Rolling Steel Plant, Tianjin Yinze Metal Sheet Plant and Tangshan
      Fengrun Metal Sheet Plant;





·
      Competitors of Longmen Joint Venture
      include: Shanxi Haixin Iron and Steel Co., Ltd. and Gansu Jiuquan Iron and
      Steel
      Co., Ltd.; and





·
      Competitors of Baotou Steel Pipe Joint
      Venture include: Tianjin Bo Ai Steel Pipe Co., Hebei Cangzhou Zhong Yuan Steel
      Pipe Co., Shanxi Taiyuan Guo Lian Steel Pipe Co.





Our
      revenue is dependent, in large part, on significant contracts from a limited
      number of customers. We have five major customers which represented
      approximately 59% and 30% of our total sales for the fiscal year ended December
      31, 2007 and 2006, respectively, and accounted for 0% of total account
      receivables as of December 31, 2007. These customers are: Shaanxi Longmen Iron
      and Steel Group Co., Ltd., China Mine Metals Corporation, Shaanxi Haiyan Coking
      Co., Ltd., Shaanxi Longmen Iron and Steel Group Co., Ltd. Baoji Rolling Mill,
      Xi’an Wanlong Materials Trading Co., Ltd. We believe that revenue derived from
      current and future large customers will continue to represent a significant
      portion of our total revenue.





**Intellectual
      Property Rights**





“Qiu
      Steel” is the registered trademark under which we sell hot-rolled carbon and
      silicon steel sheets products produced at Daqiuzhuang Metal. The “Qiu Steel”
logo has been registered with the China National Trademark Bureau under No.
      586433. “Qiu Steel” is registered under the GB 912-89 national quality standard,
      and certified under the National Quality Assurance program.




4





“Baogang
      Tongyong” is the trademark under which we sell spiral-weld steel pipes products
      produced at Baotou Steel Pipe Joint Venture. This trademark is currently being
      registered with China National Trademark Bureau. **





“Yu
      Long”
is the registered trademark under which we sell rebar and roundbar products.
      The
      trademark is registered under the ISO9001:2000 international quality
      standard.





**Employees**





As
      of
      December 31, 2007, we had 6,250 employees on a full time basis. As of December
      31, 2006, we had 1,250 employees on a full time basis. The increase in the
      number of employees is due to the two joint ventures we consummated in 2007.





**ITEM
      1A. RISK FACTORS**




Our
      business, financial condition and results of operations are subject to various
      risks, including those discussed below, which may affect the value of our
      securities.  The risks discussed below are those that we believe are
      currently the most significant, although additional risks not presently known
      to
      us or that we currently deem less significant may also impact our business,
      financial condition and results of operations, perhaps materially.





**Risks
      Related to Our Business**





***We
      face substantial competition which, among other things, may lead to price
      pressure and adversely affect our sales.***





We
      compete with other market players on the basis of product quality,
      responsiveness to customer needs and price. There are two types of steel and
      iron companies in China: State Owned Enterprises (“SOEs”), and privately owned
      companies.





Criteria
      important to our customers when selecting a steel supplier include:





·
      Quality;





·
      Price/cost competitiveness;





·System
      and product
      performance;





·
      Reliability and timeliness of
      delivery;





·
      New product and technology development
      capability;





·
      Excellence and flexibility in
      operations;





·
      Degree of global and local
      presence;





·
      Effectiveness of customer service;
      and





·
      Overall management capability.




5





We
      compete with both SOEs and privately owned steel manufacturers. While we believe
      that our price and quality are superior to other manufacturers, many of our
      competitors are better capitalized, more experienced, and have deeper ties
      in
      the Chinese marketplace. We consider there to be the following eight major
      competitors of similar size, production capability and product line in the
      market place competing against our three operating subsidiaries as
      indicated:





·
      Competitors of Daqiuzhuang Metal include:
      Tianjin No. 1 Rolling Steel Plant, Tianjin Yinze Metal Sheet Plant and Tangshan
      Fengrun Metal Sheet Plant;





·
      Competitors of Longmen Joint Venture
      include: Shanxi Haixin Iron and Steel Co., Ltd. and Gansu Jiuquan Iron and
      Steel
      Co., Ltd.; and





·
      Competitors of Baotou Steel Pipe Joint
      Venture include: Tianjin Bo Ai Steel Pipe Co., Hebei Cangzhou Zhong Yuan Steel
      Pipe Co., and Shanxi Taiyuan Guo Lian Steel Pipe Co.





In
      addition, with China’s entry into the World Trade Organization and China’s
      agreements to lift many of the barriers to foreign competition, we believe
      that
      competition will increase as a whole with the entry of foreign companies into
      this market. This may limit our opportunities for growth, lead to price pressure
      and reduce our profitability. We may not be able to compete favorably and this
      increased competition may harm our business, our business prospects and results
      of operations.





***Our
      limited operating history may not serve as an adequate basis to judge our future
      prospects and results of operations.***





Our
      limited operating history may not provide a meaningful basis on which to
      evaluate our business. Although our revenues have grown rapidly since inception,
      we might not be able to maintain our profitability or we may incur net losses
      in
      the future. We expect that our operating expenses will increase as we expand.
      Any significant failure to realize anticipated revenue growth could result
      in
      significant operating losses. We will continue to encounter risks and
      difficulties frequently experienced by companies at a similar stage of
      development, including our potential failure to:





·
      Implement our business model and strategy
      and adapt and modify them as needed;





·
      Increase awareness of our brands, protect
      our reputation and develop customer loyalty;





· Manage
      our expanding operations and
      service offerings, including the integration of any future
      acquisitions;





· Maintain
      adequate control of our
      expenses;





· Anticipate
      and adapt to changing
      conditions in the markets in which we operate as well as the impact of any
      changes in government regulation; and





· Anticipate
      mergers and acquisitions,
      technological developments and other significant competitive and market dynamics
      involving our competitors. Our business, business prospects and results of
      operations will be affected if we are not successful in addressing any or all
      of
      these risks and difficulties.





***Our
      inability to fund our capital expenditure requirements may adversely affect
      our
      growth and profitability.***





Our
      continued growth is dependent upon our ability to raise additional capital
      from
      outside sources. Our strategy is to grow through aggressive mergers, joint
      ventures and acquisitions targeting SOE steel companies and selected entities
      with outstanding potential. Our growth strategy will require us to obtain
      additional financing through capital markets. In the future, we may be unable
      to
      obtain the necessary financing on a timely basis and on favorable terms, and
      our
      failure to do so may weaken our financial position, reduce our competitiveness,
      limit our growth and reduce our profitability. Our ability to obtain acceptable
      financing at any given time may depend on a number of factors,
      including:





·
      Our financial condition and results of
      operations;




6





·
      The condition of the PRC economy and the
      industry sectors in which we operate; and





·
      Conditions in relevant financial markets in
      the U.S., the PRC and elsewhere in the world.





***We
      may not be able to effectively control and manage our
      growth.***





If
      our
      business and markets grow and develop, it will be necessary for us to finance
      and manage such an expansion in an orderly fashion. This growth will lead to
      an
      increase in the responsibilities of existing personnel, the hiring of additional
      personnel and expansion of our scope of operations. It is possible that we
      may
      not be able to obtain the required financing under terms that are acceptable
      to
      us or hire additional personnel to meet the needs of our expansion.





***Our
      business, revenues and profitability are dependent on a limited number of large
      customers.***





Our
      revenue is dependent, in large part, on significant contracts with a limited
      number of large customers. For the fiscal year ended December 31, 2007,
      approximately 59% of our sales were to five customers and these customers
      accounted for 0% of total account receivables . We
      believe that revenue derived from our current and future large customers will
      continue to represent a significant portion of our total revenue. Our inability
      to continue to secure and maintain a sufficient number of large contracts or
      the
      loss of, or significant reduction in purchases by, one or more of our major
      customers would have the effect of reducing our revenues and profitability.





Moreover,
      our success will depend in part upon our ability to obtain orders from new
      customers, as well as the financial condition and success of our customers
      and
      general economic conditions in China.





***Steel
      consumption is cyclical and worldwide overcapacity in the steel industry and
      the
      availability of alternative products have resulted in intense competition,
      which
      may have an adverse effect on profitability and cash flow.***





Steel
      consumption is highly cyclical and generally follows general economic and
      industrial conditions both worldwide and in regional markets. The steel industry
      has historically been characterized by excess world supply, which has led to
      substantial price decreases during periods of economic weakness. Future economic
      downturns could decrease the demand for our products. Substitute materials
      are
      increasingly available for many steel products, which further reduces demand
      for
      steel.





***We
      may not be able to pass on to customers the increases in the costs of our raw
      materials, particularly iron-ore and steel.***





The
      major
      raw materials that we purchase for production are iron-ore and steel coil.
      The
      price and availability of these raw materials are subject to market conditions
      affecting supply and demand. Our financial condition or results of operations
      may be impaired by further increases in raw material costs to the extent we
      are
      unable to pass those increases to our customers. In addition, if these materials
      are not available on a timely basis or at all, we may not be able to produce
      our
      products and our sales may decline.





***The
      price of steel may decline due to an overproduction by Chinese steel
      companies.***





According
      to the survey conducted by the China Iron and Steel Association, there are
      more
      than 1,100 steel companies in China. Among those, only 15 companies have over
      5
      million tons of production capacity. Each steel company has its own production
      plan. The Chinese government posted this guidance on the steel industry to
      encourage consolidation within the fragmented steel sector to mitigate problems
      of low-end repetitive production and inefficient use of resources. The current
      situation of overproduction may not be solved by these measures posted by the
      Chinese government and result in consolidation within the fragmented steel
      sector. If the current state of overproduction continues, our product shipments
      could decline, our inventory could build up and eventually we may be required
      to
      decrease our sales price, which may eventually decrease our
      profitability.




***Disruptions
      to our manufacturing processes could adversely affect our operations, customer
      service levels and financial results.***




Steel
      manufacturing processes are dependent on critical steel-making equipment, such
      as furnaces, continuous casters, rolling mills and electrical equipment (such
      as
      transformers), and such equipment may incur downtime as a result of
      unanticipated failures or other events, such as fires or furnace breakdowns.
      Although our manufacturing plants have not experienced plant shutdowns or
      periods of reduced production as a result of such equipment failures or other
      events, we may experience such problems in the future. To the extent that lost
      production as a result of such a disruption could not be compensated for by
      unaffected facilities, such disruptions could have an adverse effect on our
      operations, customer service levels and financial results.




7





***Because
      we are a holding company with substantially all of our operations conducted
      through our subsidiaries, our performance will be affected by the performance
      of
      our subsidiaries.***





We
      have
      no operations independent of those of Daqiuzhuang Metal, Baotou Steel Pipe
      Joint
      Venture and Longmen Joint Venture, and our principal assets are our investments
      in these subsidiaries. As a result, we are dependent upon the performance of
      Daqiuzhuang Metal, Baotou Steel Pipe Joint Venture and Longmen Joint Venture
      and
      we will be subject to the financial, business and other factors affecting our
      subsidiaries as well as general economic and financial conditions. As
      substantially all of our operations are and will be conducted through our
      subsidiaries, we will be dependent on the cash flow of our subsidiaries to
      meet
      our obligations.





Because
      virtually all of our assets are and will be held by operating subsidiaries,
      the
      claims of our stockholders will be structurally subordinate to all existing
      and
      future liabilities and obligations, and trade payables of such subsidiaries.
      In
      the event of our bankruptcy, liquidation or reorganization, our assets and
      those
      of our subsidiaries will be available to satisfy the claims of our stockholders
      only after all of our subsidiaries’ liabilities and obligations have been paid
      in full.





***We
      depend on acquiring companies to fulfill our growth
      plan.***





An
      important element of our planned growth strategy is the pursuit and acquisitions
      of other businesses that increase our existing production capacity. However,
      acquiring and integrating businesses involves a number of special risks,
      including the possibility that management may be distracted from regular
      business concerns by the need to integrate operations, unforeseen difficulties
      in integrating operations and systems, problems relating to assimilating and
      retaining employees of the acquired businesses, challenges in retaining
      customers, and potential adverse short-term effects on operation results. If
      we
      are unable to successfully complete and integrate strategic acquisitions in
      a
      timely manner, our growth strategy may be adversely impacted.





***We
      depend on bank financing for our working capital
      needs.***





We
      have
      various financing facilities amounting to approximately US $142.1 million,
      of
      which all are due on demand or within one year **.** So
      far,
      we have not experienced any difficulties in repaying such financing facilities.
      However, we may in the future encounter difficulties to repay or refinance
      such
      loans on time and may face severe difficulties in our operations and financial
      position.





***We
      rely on Mr. Zuosheng Yu for important business
      leadership.***





We
      depend, to a large extent, on the abilities and operations of our current
      management team. However, we have a particular reliance upon Mr. Zuosheng Yu,
      our Chairman, Chief Executive Officer and majority shareholder, for the
      direction of our business and leadership in our growth effort. The loss of
      the
      services of Mr. Yu, for any reason, may have a material adverse effect on our
      business and prospects. We cannot guarantee that Mr. Yu will continue to be
      available to us, or that we will be able to find a suitable replacement for
      Mr.
      Yu on a timely basis.





***There
      have been historical deficiencies with our internal controls and these remain
      areas of our internal and disclosure controls that require improvements, and
      we
      are exposed to potential risks from legislation requiring companies to evaluate
      controls under Section 404 of the Sarbanes-Oxley Act of 2002.***





While
      we
      believe that we currently have adequate internal control procedures in place,
      we
      are still exposed to potential risks from legislation requiring companies to
      evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002. Under
      the
      supervision and with the participation of our management, we have evaluated
      our
      internal controls systems in order to allow management to report on, and our
      registered independent public accounting firm to attest to, our internal
      controls, as required by Section 404 of the Sarbanes-Oxley Act. We have
      performed the system and process evaluation and testing required in an effort
      to
      comply with the management certification and auditor attestation requirements
      of
      Section 404. As a result, we have incurred additional expenses and a diversion
      of management’s time. If we are not able to continue to meet the requirements of
      Section 404 in a timely manner or with adequate compliance, we might be subject
      to sanctions or investigation by regulatory authorities, such as the SEC or
      the
      NYSE Market. Any such action could adversely affect our financial results and
      the market price of our stock.




8





***We
      do not presently maintain product liability insurance in the PRC, and our
      property and equipment insurance does not cover the full value of our property
      and equipment, which leaves us with exposure in the event of loss or damage
      to
      our properties or claims filed against us.***





We
      currently do not carry any product liability or other similar insurance in
      China. We cannot assure you that we would not face liability in the event of
      the
      failure of any of our products.




We
      have
      purchased automobile insurance with third party liability coverage for our
      vehicles. In addition, we have purchased property insurance from China United
      Property Insurance Company to cover real property and plant. Except for property
      and automobile insurance, we do not have other insurance such as business
      liability or disruption insurance coverage for our operations in the PRC. In
      the
      event of a significant product liability claim or other uninsured event, our
      financial results and the price of our common stock may be adversely affected.





**Risks
      Related to Operating Our Business in China**





***We
      face the risk that changes in the policies of the Chinese government could
      have
      significant impact upon the business we may be able to conduct in China and
      the
      profitability of such business.***





The
      economy of China is transitioning from a planned economy to a market oriented
      economy subject to five-year and annual plans adopted by the government that
      set
      down national economic development goals. Policies of the Chinese government
      can
      have significant effects on the economic conditions of China. The Chinese
      government has confirmed that economic development will follow a model of market
      economy under socialism. Under this direction, we believe that the PRC will
      continue to strengthen its economic and trading relationships with foreign
      countries and business development in China will follow market forces. While
      we
      believe that this trend will continue, there can be no assurance that such
      will
      be the case. A change in policies by the Chinese government could adversely
      affect our interests through, among other factors: changes in laws, regulations
      or the interpretation thereof; confiscatory taxation; restrictions on currency
      conversion, imports or sources of supplies; or the expropriation or
      nationalization of private enterprises. Although the Chinese government has
      been
      pursuing economic reform policies for approximately two decades, the Chinese
      government may significantly alter such policies, especially in the event of
      a
      change in leadership, social or political disruption, or other circumstances
      affecting China’s political, economic and social life.





***The
      PRC laws and regulations governing our current business operations and
      contractual arrangements are uncertain, and if we are found to be in violation,
      we could be subject to sanctions. In addition, any changes in such PRC laws
      and
      regulations may have a material and adverse effect on our
      business.***




There
      are
      substantial uncertainties regarding the interpretation and application of PRC
      laws and regulations, including but not limited to the laws and regulations
      governing our business, or the enforcement and performance of our arrangements
      with customers in the event of the imposition of statutory liens, death,
      bankruptcy and criminal proceedings. Along with our subsidiaries, we are
      considered foreign persons or foreign funded enterprises under PRC laws, and
      as
      a result, we are required to comply with PRC laws and regulations. These laws
      and regulations are relatively new and may be subject to future changes, and
      their official interpretation and enforcement may involve substantial
      uncertainty. The effectiveness of newly enacted laws, regulations or amendments
      may be delayed, resulting in detrimental reliance by foreign investors. New
      laws
      and regulations that affect existing and proposed future businesses may also
      be
      applied retroactively. In addition, the PRC authorities retain broad discretion
      in dealing with violations of laws and regulations, including levying fines,
      revoking business licenses and requiring actions necessary for compliance.
      In
      particular, licenses, permits and beneficial treatment issued or granted to
      us
      by relevant governmental bodies may be revoked at a later time under contrary
      findings of higher regulatory bodies. We cannot predict what effect the
      interpretation of existing or new PRC laws or regulations may have on our
      businesses. We may be subject to sanctions, including fines, and could be
      required to restructure our operations. Such restructuring may not be effective
      or result in similar or other difficulties. As a result of these substantial
      uncertainties, there is a risk that we may be found in violation of any current
      or future PRC laws or regulations.




9





***A
      slowdown or other adverse developments in the PRC economy may materially and
      adversely affect our customers, demand for our services and our
      business.***





All
      of
      our operations are conducted in the PRC and all of our revenues are generated
      from sales to businesses operating in the PRC. Although the PRC economy has
      grown significantly in recent years, such growth may not continue. We do not
      know how sensitive we are to a slowdown in economic growth or other adverse
      changes in the PRC economy which may affect demand for agricultural equipment.
      A
      slowdown in overall economic growth, an economic downturn or recession or other
      adverse economic developments in the PRC may materially reduce the demand for
      our products and in turn adversely effect our results of operations and our
      productivity.





***Inflation
      in China could negatively affect our profitability and
      growth.***





While
      the
      Chinese economy has experienced rapid growth, such growth has been uneven among
      various sectors of the economy and in different geographical areas of the
      country. Rapid economic growth can lead to growth in the money supply and rising
      inflation. If prices for our products rise at a rate that is insufficient to
      compensate for the rise in the costs of supplies, it may have an adverse effect
      on profitability. In order to control inflation in the past, the Chinese
      government has imposed controls on bank credits, limits on loans for fixed
      assets and restrictions on state bank lending. Such an austerity policy can
      lead
      to a slowing of economic growth. In October 2004, the People’s Bank of China,
      China’s central bank, raised interest rates for the first time in nearly a
      decade and indicated in a statement that the measure was prompted by
      inflationary concerns in the Chinese economy. Repeated increases in interest
      rates by the central bank will likely slow economic activity in China which
      could, in turn, materially increase our costs and also reduce demand for our
      products.





***If
      relations between the United States and China deteriorate, our stock price
      may
      decrease and we may experience difficulties accessing the U.S. capital
      markets.***





At
      various times during recent years, the United States and China have had
      disagreements over political and economic issues. Controversies may arise in
      the
      future between these two countries. Any political or trade controversies between
      the United States and China could impact the market price of our common stock
      and our ability to access U.S. capital markets.





***The
      Chinese Government could change its policies toward private enterprises, which
      could result in the total loss of our investments in
      China.***





Our
      business is subject to political and economic uncertainties in China and may
      be
      adversely affected by its political, economic and social developments. Over
      the
      past several years, the Chinese Government has pursued economic reform policies
      including the encouragement of private economic activity and greater economic
      decentralization. The Chinese Government may not continue to pursue these
      policies or may alter them to our detriment from time to time. Conducting our
      business might become more difficult or costly due to changes in policies,
      laws
      and regulations, or in their interpretation or the imposition of confiscatory
      taxation, restrictions on currency conversion, restrictions or prohibitions
      on
      dividend payments to stockholders, devaluations of currency or the
      nationalization or other expropriation of private enterprises. In addition,
      nationalization or expropriation could result in the total loss of our
      investments in China.





***The
      PRC State Administration of Foreign Exchange, or SAFE, requires PRC residents
      to
      register with, or obtain approval from SAFE regarding their direct or indirect
      offshore investment activities.***





PRC
      State
      Administration of Foreign Exchange Regulations regarding offshore financing
      activities by PRC residents have undertaken continuous changes which may
      increase the administrative burden we face and create regulatory uncertainties
      that could adversely affect the implementation of our acquisition strategy,
      and
      a failure by our shareholders who are PRC residents to make any required
      applications and filings pursuant to such regulations may prevent us from being
      able to distribute profits and could expose us and our PRC resident shareholders
      to liability under PRC law.




10





***Our
      business, results of operations and overall profitability are linked to the
      economic, political and social conditions in China.***





All
      of
      our business, assets and operations are located in China. The economy of China
      differs from the economies of most developed countries in many respects,
      including government involvement, level of development, growth rate, control
      of
      foreign exchange, and allocation of resources. The economy of China has been
      transitioning from a planned economy to a more market-oriented economy. Although
      the Chinese Government has implemented measures recently emphasizing the
      utilization of market forces for economic reform, the reduction of state
      ownership of productive assets and the establishment of sound corporate
      governance in business enterprises, a substantial portion of productive assets
      in China is still owned by the Chinese Government. In addition, the Chinese
      Government continues to play a significant role in regulating industry by
      imposing industrial policies. It also exercises significant control over China’s
      economic growth through the allocation of resources, controlling payment of
      foreign currency denominated obligations, setting monetary policy and providing
      preferential treatment to particular industries or companies. Therefore, the
      Chinese Government’s involvement in the economy may negatively affect our
      business operations, results of operations and our financial
      condition.





***Governmental
      control of currency conversion may cause the value of your investment in our
      common stock to decrease.***





The
      PRC
      government imposes controls on the convertibility of Renminbi into foreign
      currencies and, in certain cases, the remittance of currency out of the PRC.
      We
      receive substantially all of our revenues in Renminbi, which is currently not
      a
      freely convertible currency. Shortages in the availability of foreign currency
      may restrict our ability to remit sufficient foreign currency to pay dividends,
      or otherwise satisfy foreign currency denominated obligations. Under existing
      PRC foreign exchange regulations, payments of current account items, including
      profit distributions, interest payments and expenditures from the transaction,
      can be made in foreign currencies without prior approval from the PRC State
      Administration of Foreign Exchange by complying with certain procedural
      requirements. However, approval from appropriate governmental authorities is
      required where Renminbi is to be converted into foreign currency and remitted
      out of China to pay capital expenses such as the repayment of bank loans
      denominated in foreign currencies.





The
      PRC
      government may also at its discretion restrict access in the future to foreign
      currencies for current account transactions. If the foreign exchange control
      system prevents us from obtaining sufficient foreign currency to satisfy our
      currency demands, we may not be able to pay certain of our expenses as they
      come
      due.




***The
      fluctuation of the Renminbi may cause the value of your investment in our common
      stock to decrease.***





The
      value
      of the Renminbi against the U.S. dollar and other currencies may fluctuate
      and
      is affected by, among other things, changes in the PRC’s political and economic
      conditions. As we rely entirely on revenues earned in the PRC, our cash flows,
      revenues and financial condition will be affected by any significant revaluation
      of the Renminbi. For example, to the extent that we need to convert U.S. dollars
      we receive from an offering of our securities into Renminbi for our operations,
      if the Renminbi appreciates against the U.S. dollar, the Renminbi equivalent
      of
      the US dollar we convert would be reduced. Conversely, if we decide to convert
      our Renminbi into U.S. dollars for the purpose of making payments for dividends
      on our common shares or for other business purposes and the U.S. dollar
      appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi
      we
      convert would be reduced. To date, however, we have not engaged in transactions
      of either type. In addition, the depreciation of significant U.S. dollar
      denominated assets could result in a charge to our income statement and a
      reduction in the value of these assets.




11





Since
      1994 the PRC has pegged the value of the Renminbi to the U.S. dollar. We do
      not
      believe that this policy has affected our business. However, there have been
      indications that the PRC government may be reconsidering its monetary policy
      in
      light of the overall devaluation of the U.S. dollar against the Euro and other
      currencies during the last two years. In July 2005, the PRC government revalued
      the Renminbi by 2.1% against the U.S. dollar, moving from Renminbi 8.28 to
      Renminbi 8.11 per dollar. If the pegging of the Renminbi to the U.S. dollar
      is
      loosened, we anticipate that the value of the Renminbi will appreciate against
      the dollar with the consequences discussed above. As of December 31, 2007,
      the
      exchange rate of the RMB to the U.S. dollar was 7.3.





***We
      are subject to environmental and safety regulations, which may increase our
      compliance costs and reduce our overall
      profitability.***





We
      are
      subject to the requirements of environmental and occupational safety and health
      laws and regulations in China. We may incur substantial costs or liabilities
      in
      connection with these requirements. Additionally, these regulations may become
      stricter, which will increase our costs of compliance in a manner that could
      reduce our overall profitability. The capital requirements and other
      expenditures that may be necessary to comply with environmental requirements
      could increase and become a significant expense linked to the conduct of our
      business.





***Our
      operating subsidiary must comply with environmental protection laws that could
      adversely affect our profitability.***





We
      are
      required to comply with the environmental protection laws and regulations
      promulgated by the national and local governments of the PRC. Yearly inspections
      of waste treatment systems require the payment of a license fee which could
      become a penalty fee if standards are not maintained. If we fail to comply
      with
      any of these environmental laws and regulations in the PRC, depending on the
      types and seriousness of the violation, we may be subject to, among other
      things, warning from relevant authorities, imposition of fines, specific
      performance and/or criminal liability, forfeiture of profits made, being ordered
      to close down our business operations and suspension of relevant permits.





***Because
      the Chinese legal system is not fully developed, our legal protections may
      be
      limited.***





The
      PRC
      legal system is based upon written statutes. Prior court decisions may be cited
      for reference but are not binding on subsequent cases and have limited value
      as
      precedents. Since 1979, the PRC legislative bodies have promulgated laws and
      regulations dealing with economic matters such as foreign investment, corporate
      organization and governance, commerce, taxation and trade. However, the PRC
      has
      not developed a fully integrated legal system and the array of new laws and
      regulations may not be sufficient to cover all aspects of economic activities
      in
      the PRC. In particular, because these laws and regulations are relatively new,
      and because of the limited volume of published decisions and their non-binding
      nature, the interpretation and enforcement of these laws and regulations involve
      uncertainties. In addition, published government policies and internal rules
      may
      have retroactive effects and, in some cases, the policies and rules are not
      published at all. As a result, we may be unaware of our violation of these
      policies and rules until some time later. The laws of the PRC govern our
      contractual arrangements with our affiliated entities. The enforcement of these
      contracts and the interpretation of the laws governing these relationships
      are
      subject to uncertainty. For the above reasons, legal compliance in China may
      be
      more difficult or expensive.





**Risks
      Related to Our Common Stock**





***Our
      officers, directors and affiliates control us through their positions and stock
      ownership and their interests may differ from other
      stockholders.***





Our
      officers, directors and affiliates beneficially own approximately 70% of our
      common stock. Mr. Zuosheng Yu our major shareholder, beneficially owns
      approximately 69% of our common stock. Mr. Yu can effectively control us and
      his
      interests may differ from other stockholders.





All
      our
      subsidiaries are located in China and substantially all of our assets are
      located outside the United States. It may therefore be difficult for investors
      in the United States to enforce their legal rights based on the civil liability
      provisions of the U.S. federal securities laws against us in the courts of
      either the U.S. and the PRC and, even if civil judgments are obtained in U.S.
      courts, such judgments may not be enforceable in PRC courts. All our directors
      and officers reside outside of the United States. It is unclear if extradition
      treaties now in effect between the United States and the PRC would permit
      effective enforcement against us or our officers and directors of criminal
      penalties under the U.S. federal securities laws or otherwise.




12





***We
      have never paid cash dividends and are not likely to do so in the foreseeable
      future.***





We
      currently intend to retain any future earnings for use in the operation and
      expansion of our business. We do not expect to pay any cash dividends in the
      foreseeable future but will review this policy as circumstances
      dictate.





***Our
      common stock is subject to price volatility unrelated to our
      operations.***





The
      market price of our common stock could fluctuate substantially due to a variety
      of factors, including market perception of our ability to achieve our planned
      growth, quarterly operating results of other steel makers, trading volume in
      our
      common stock, changes in general conditions in the economy and the financial
      markets or other developments affecting our competitors or us. In addition,
      the
      stock market is subject to extreme price and volume fluctuations. This
      volatility has had a significant effect on the market price of securities issued
      by many companies for reasons unrelated to their operating performance and
      could
      have the same effect on our common stock.





***Investors
      may experience dilution from any conversion of the senior convertible notes
      and
      the exercise of warrants we issued in December 2007.***




We
      are
      registering the shares of our common stock issuable upon conversion
      approximately $40,000,000 worth of senior convertible notes convertible into
      4,170,009 shares of our common stock assuming a conversion price of $12.47
      per
      share and applicable interest rates and upon the exercise warrants to purchase
      an additional aggregate amount of 1,154,958 shares of our common stock at an
      exercise price of $13.51 per share that we issued in December 2007. The issuance
      of shares of our common stock upon conversion of the notes and exercise of
      the
      warrants will dilute current shareholders’ holdings in our company. The senior
      convertible notes have a five year term through December 12, 2012 and the
      warrants are exercisable from May 13, 2008 to May 13, 2013.





**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





Not
      Applicable





**ITEM
      2. PROPERTIES**





Daqiuzhuang
      Metal





The
      properties of Daqiuzhuang Metal consist of manufacturing sites and office
      buildings located in the Jinghai county, about 20 miles (45 kilometers)
      southwest of the Tianjin city center on a total of 17.81 acres (7.21 hectares)
      of land, which includes 320,390 sq. ft. (29,667 sq. m.) of building space.





Under
      Chinese law, all land in the PRC is owned by the government, which grants a
      “land use right” to an individual or entity after a purchase price for such
“land use right” is paid to the government. The land use right allows the holder
      the right to use the land for a specified long-term period of time and enjoy
      all
      the ownership incidents to the land. We are the registered owner of the land
      use
      rights for the parcels of land identified in the chart below.





**Registered
                Owner of Land use Right**
            
            **Location
                & Certificate of Land Use Right**
            
            **Usage**
            
            **Life
                of Land Use Right**Tianjin
                Daqiuzhuang Metal Sheet Co., Ltd.
            
            No.
                6 West Gangtuan Road, Daqiuzhuang, Jinghai Country, Tianjin
            
            Industrial
                Use
            
            50
                yearsTianjin
                Daqiuzhuang Metal Sheet Co., Ltd.
            
            No.
                35 Baiyi Road, Daqiuzhuang, Jinghai County, Tianjin
            
            Industrial
                Use
            
            50
                yearsTianjin
                Daqiuzhuang Metal Sheet Co., Ltd.
            
            Ying
                Fong Road North, Daqiuzhouang, Jinghai country Tianjin
            
            Commercial
                Use
            
            50
                years




13


Baotou
      Steel Pipe Joint Venture





The
      properties of Baotou Steel Pipe Joint Venture consist of our production and
      administrative sites located on the main production campus of the Baotou Steel
      located in Baotou, Inner Mongolia Autonomous Region - a province in Northern
      China. The land is rented from Baotou Steel, our strategic partner in the Baotou
      Steel Pipe Joint Venture.





Longmen
      Joint Venture





The
      properties of Longmen Joint Venture consist of production and administrative
      sites located in various throughout the southern half of Shaanxi province on
      a
      land collectively which totals approximately 300.2 acres (121.5 hectares).





Under
      Chinese law, all land in the PRC is owned by the government, which grants a
      “land use right” to an individual or entity after a purchase price for such
“land use right” is paid to the government. The land use right allows the holder
      the right to use the land for a specified long-term period of time and enjoy
      all
      the ownership incidents to the land. We are the registered owner of the land
      use
      rights for the parcels of land identified in the chart below.





**Registered
                Owner of Land use Right**
            
            **Location
                & Certificate of Land Use Right**
            
            **Usage**
            
            **Life
                of Land Use Right**Shaanxi
                Longmen Iron and Steel Co., Ltd
            
            North
                Huanyuan Road, Weiyang District, Xi'an, Shaanxi
            
            Industrial
                Use
            
            50
                YearsShaanxi
                Longmen Iron and Steel Co., Ltd
            
            Longmen
                Town, Hancheng, Shaanxi
            
            Industrial
                Use
            
            50
                YearsShaanxi
                Longmen Iron and Steel Co., Ltd
            
            Sanping
                Village, Shipo Town, Zhashui County, Shaanxi
            
            Industrial
                Use
            
            50
                YearsShaanxi
                Longmen Iron and Steel Co., Ltd
            
            Zhaikouhe
                Village, Xunjian Town, Zhashui County, Shaanxi
            
            Industrial
                Use
            
            50
                YearsShaanxi
                Longmen Iron and Steel Co., Ltd
            
            East
                Taishi Avenue, Xincheng District, Hancheng, Shaanxi
            
            Commercial
                Use
            
            50
                Years





**ITEM
      3. LEGAL PROCEEDINGS.**





None.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





None.




14





**PART
      II**





**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES.**





Prior
      to
      March 4, 2005, our common stock was listed on the OTC Bulletin Board under
      the
      name of American Construction Company and traded with the symbol “ACNS.” From
      March 4, 2005, through October 2, 2007, our common stock was listed on the
      OTC
      Bulletin Board under the name General Steel Holdings, Inc. and traded with
      the
      ticker symbol "GSHO." From October 3, 2007, through March 5, 2008, our common
      stock was listed on the American Stock Exchange under the name General Steel
      Holdings, Inc., and traded with the ticker symbol of “GSI.” On March 6, 2008,
      our common stock began trading on the NYSE Arca under the name General Steel
      Holdings, Inc., and trading with the ticker symbol “GSI.”Information regarding the high and low sales prices for the common stock for
      each quarter of the last two years is as follows:





**HIGH
                AND LOW STOCK
                PRICES**
            
            **1ST
                QTR**
            
            **2ND
                QTR**
            
            **3RD
                QTR**
            
            **4TH
                QTR**2007High
            
            $
            5.80
            
            $
            4.09
            
            $
            9.00
            
            $
            19.20Low
            
            $
            1.12
            
            $
            2.76
            
            $
            5.05
            
            $
            7.762006High
            
            $
            2.33
            
            $
            1.95
            
            $
            1.45
            
            $
            1.30Low
            
            $
            1.30
            
            $
            1.05
            
            $
            1.10
            
            $
            0.90




As
      of  February
      29, 2008, there were approximately 3,700  holders of record of our common
      stock.





**Dividend
      Policy**





Our
      board
      of directors currently does not intend to declare dividends or make any other
      distributions to our shareholders. Any determination to pay dividends in the
      future will be at our board’s discretion and will depend upon our results of
      operations, financial condition and prospects as well as other factors deemed
      relevant by our board of directors.





**Unregistered
      Sale of Securities**


On
        May
        18, 2007, the board of directors of General Steel Holdings, Inc. (“the Company”)
        entered into a Purchase Agreement with Victory New Holdings Limited, a British
        Virgin Islands registered company (“the Victory New”), whereby Victory New
        agreed to sell to the Company and the Company agreed to acquire (the
“Acquisition”) Victory New’s 30% minority interest in Tianjin Daqiuzhuang Metal
        Sheet Co., Ltd. (“Daqiuzhuang Metal”), a subsidiary of the Company.
        Pursuant to the Purchase Agreement, as consideration for the Acquisition,
        the
        Company agreed to issue Victory New an aggregate of 3,092,899 shares of the
        Company’s Series A Preferred Stock at a price of $2.00 per share, which have a
        voting power of 30% of the combined voting power of the Company’s common and
        preferred stocks for the entire life of the Company. The purchase price was
        based on the book value of $6,185,797 instead of the appraised value of
        $9,304,796. As a result of the Acquisition, the Company will increase its
        equity
        interest in Daqiuzhuang Metal from approximately 70% to 100% and Daqiuzhuang
        Metal will become a wholly owned subsidiary of the Company. Daqiuzhaung Metal
        is
        currently the only revenue generating subsidiary of the
        Company.




On
      December 13, 2007, we entered into a Securities Purchase Agreement (the
“Agreement”) with certain institutional investors (the “Buyers”). Pursuant to
      the Agreement, we agreed to sell to the Buyers (i) senior convertible notes
      in
      the aggregate principal amount of $40,000,000 (“Notes”) and (ii) warrants to
      purchase an additional aggregate amount of 1,154,958 shares of our Common Stock
      (the “Warrants”).




The
      Notes
      bear initial interest at 3% per annum, which will be increased each year as
      specified in the Notes, payable semi-annually in cash or shares of our common
      stock, par value $0.001 per share (the “Common Stock”). The Notes have a five
      year term through December 12, 2012. They are convertible into shares of the
      Common Stock, subject to customary anti-dilution adjustments. The initial
      conversion price is $12.47. We may redeem the Notes at 100% of the principal
      amount, plus any accrued and unpaid interest, beginning December 13, 2008,
      provided the market price of the Common Stock is at least 150% of the then
      applicable conversion price for 30 consecutive trading days prior to the
      redemption. The Notes are secured by a first priority, perfected security
      interest in certain shares of Common Stock of Zuosheng Yu, as evidenced by
      the
      pledge agreement (the “Pledge Agreement”). The Notes are subject to events of
      default customary for convertible securities and for a secured financing.




The
      Warrants grant the Buyers the right to acquire shares of Common Stock at $13.51
      per share of Common Stock, subject to customary anti-dilution adjustments.
      The
      Warrants may be exercised to purchase Common Stock at any time or times on
      or
      after May 13, 2008, but not after May 13, 2013, the expiration date of the
      Warrants.




In
      connection with this transaction, the Buyers and we entered into a registration
      rights agreement (the “Registration Rights Agreement”). Pursuant to the terms
      and conditions of the Registration Rights Agreement, we have agreed to register
      within 60 calendar days after closing shares of Common Stock issuable to the
      Buyers for resale on a Form S-3 Registration Statement to be effective by 90
      calendar days or 120 days if the registration statement is subject to a full
      review by the U.S. Securities and Exchange Commission. We shall register an
      amount of Common Stock for resale that equals at least 120% of the sum of shares
      issuable upon conversion of the Notes, the exercise of the Warrants and the
      payment of interest accrued on the Notes. The registration rights granted under
      the Registration Rights Agreement are subject to customary exceptions and
      qualifications and compliance with certain registration procedures.




15





**ITEM
      6. SELECTED FINANCIAL DATA**





SUMMARY
      OF OPERATIONS


(USD
      and
      number of shares in thousands, except per share amounts)


**Years
                  ended December 31****2007**
              
              **2006**
              
              **2005**
              
              **2004**
              
              **2003****(Restated)**Total
                  sales
              
              $
              772,439
              
              $
              139,495
              
              $
              89,740
              
              $
              87,832
              
              $
              57,306Cost
                  of sales
              
              
              715,750
              
              
              135,324
              
              
              81,166
              
              
              81,613
              
              
              52,804Selling,
                  general, and administrative expenses
              
              
              16,164
              
              
              2,421
              
              
              2,781
              
              
              2,317
              
              
              1,532Income
                  from operations
              
              
              40,525
              
              
              1,749
              
              
              5,793
              
              
              3,902
              
              
              2,969Net
                  income
              
              $
              22,426
              
              $
              1,033
              
              $
              2,740
              
              $
              915
              
              $
              1,091Net
                  income per common share, basic and diluted
              
              $
              0.69
              
              $
              0.03
              
              $
              0.09
              
              $
              0.03
              
              $
              0.04Basic
                  weighted average shares outstanding
              
              
              32,425
              
              
              31,250
              
              
              31,250
              
              
              30,260
              
              
              30,000Diluted
                  weighted average shares outstanding
              
              
              32,558
              
              
              31,250
              
              
              31,250
              
              
              30,260
              
              
              30,000





FINANCIAL
      DATA


(USD
      in
      thousands, except the ratio )





**As
                of December 31****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****(restated)**Total
                assets
            
            $
            478,407
            
            $
            73,822
            
            $
            58,993
            
            $
            52,969
            
            $
            37,432Depreciation
                and amortization
            
            $
            10,337
            
            $
            1,917
            
            $
            1,344
            
            $
            1,255
            
            $
            1,013Current
                Ratio
            
            
            0.68
            
            
            0.87
            
            
            0.96
            
            
            0.92
            
            
            0.77





**Three
                months ended December 31 (unaudited)****2007**
            
            **2006**
            
            **2005****(In
                thousands, except share and per share
                amounts)**Statement
                of Operations DataSales
                revenues
            
            $
            268,192
            
            $
            42,496
            
            $
            17,719Cost
                of goods sold
            
            
            247,239
            
            
            42,838
            
            
            17,509Gross
                profit
            
            
            20,953
            
            
            -342
            
            
            210Selling,
                general, and administrative expenses
            
            
            5,894
            
            
            266
            
            
            1,017Income
                from operations
            
            
            15,059
            
            
            -607
            
            
            -808Net
                income (loss)
            
            $
            12,057
            
            $
            514
            
            $
            386Net
                income per shareBasic
            
            $
            0.36
            
            $
            0.01
            
            $
            0.01Diluted
            
            $
            0.36
            
            $
            0.01
            
            $
            0.01Balance
                Sheet DataCurrent
                assets
            
            $
            236,173
            
            $
            44,670
            
            $
            37,017Total
                assets
            
            
            478,407
            
            
            73,822
            
            
            58,993Total
                liabilities
            
            
            382,974
            
            
            53,575
            
            
            41,256Minority
                interest
            
            
            42,044
            
            
            6,186
            
            
            5,387Total
                Stockholder’s equity
            
            $
            53,389
            
            $
            14,060
            
            $
            12,350





16




**ITEM
      7. MANAGEMENT DISCUSSION AND ANALYSIS**




**Forward-Looking
      Statements:**





*The
      following discussion of the financial condition and results of operations should
      be read in conjunction with the consolidated financial statements and related
      notes thereto. The following discussion contains forward-looking statements.
      General Steel Holdings, Inc. is referred to herein as “we” or “our.” The words
      or phrases “would be,” “will allow,” “expect to”, “intends to,” “will likely
      result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” or
      similar expressions are intended to identify forward-looking statements. Such
      statements include those concerning our expected financial performance, our
      corporate strategy and operational plans. Actual results could differ materially
      from those projected in the forward-looking statements as a result of a number
      of risks and uncertainties, including: (a) those risks and uncertainties related
      to general economic conditions in China, including regulatory factors that
      may
      affect such economic conditions; (b) whether we are able to manage our planned
      growth efficiently and operate profitable operations, including whether our
      management will be able to identify, hire, train, retain, motivate and manage
      required personnel or that management will be able to successfully manage and
      exploit existing and potential market opportunities; (c) whether we are able
      to
      generate sufficient revenues or obtain financing to sustain and grow our
      operations; and (d) whether we are able to successfully fulfill our primary
      requirements for cash which are explained below under “Liquidity and Capital
      Resources. Unless otherwise required by applicable law, we do not undertake,
      and
      we specifically disclaim any obligation, to update any forward-looking
      statements to reflect occurrences, developments, unanticipated events or
      circumstances after the date of such statement.*





**Company
      Overview**





General
      Steel Holdings, Inc. (“General Steel”), headquartered in Beijing China, operates
      a diverse portfolio of Chinese steel companies. Our companies serve various
      industries and produce a variety of steel products: reinforced bars (rebar),
      hot-rolled carbon and silicon sheets and spiral weld pipes. Our aggregate
      production capacity of steel products is 3 million tons, of which the majority
      is rebar. Individual industry segments have unique demand drivers, such as
      rural
      income, infrastructure construction and energy consumption. Domestic economic
      conditions are an overall driver for all our products.





Our
      vision is to become one of the largest non-government owned steel companies
      in
      China.





Our
      mission is to acquire Chinese steel companies and increase their profitability
      and efficiencies with the infusion of applied western management practices,
      advanced production technologies and capital resources.





Our
      strategy is to grow through aggressive mergers, joint ventures and acquisitions
      targeting state-owned enterprise steel companies and selected entities with
      outstanding potential. We have executed this strategy and consummated
      controlling interest positions in two joint ventures. We are actively pursuing
      a
      plan to acquire additional assets.




17





We
      presently have controlling interest in three steel subsidiary
      companies:





· Tianjin
      Daqiuzhuang Metal Sheet Co.,
      Ltd. (Daqiuzhuang Metal);




· Baotou
      Steel - General Steel Special
      Steel Pipe Joint Venture Co., Ltd. (Baotou Steel Pipe Joint
      Venture);




·Shaanxi
      Longmen Iron and Steel Co., Ltd.
      (Longmen Joint Venture).





**Steel
      Operating Companies**





· *Tianjin
      Daqiuzhuang Metal Sheet Co., Ltd. (“Daqiuzhuang Metal”)*





Tianjin
      Daqiuzhuang Metal Sheet Co., Ltd. (“Daqiuzhuang Metal”), started its operation
      in 1988. Daqiuzhuang Metal’s core business is the manufacturing of high quality
      hot-rolled carbon and silicon steel sheets which are mainly used in the
      production of small agricultural vehicles and other specialty markets. In the
      niche market for metal sheets used in small agricultural vehicles, we estimate
      that Daqiuzhuang Metal currently maintains an approximate 50% market
      share.





Daqiuzhuang
      Metal has ten steel sheet production lines capable of processing approximately
      400,000 tons of 0.75-2.0 mm hot-rolled carbon steel sheets per year, of which
      150,000 tons has been added since mid-March 2006. Products are sold through
      a
      nation-wide network of 35 distributors and 3 regional sales
      offices.





Daqiuzhuang
      Metal uses a traditional rolling mill production sequence, such as heating,
      rolling, cutting, annealing, and flattening to process cut coil segments into
      steel sheets. The sheet sizes are approximately 2,000 mm (length) x 1,000 mm
      (width) x 0.75 to 2.0 mm (thickness). Limited size adjustments can be made
      to
      meet order requirements. Products sell under the registered “Qiu Steel” brand
      name.





On
      May
      22, 2007, we filed a current report on Form 8-K announcing we agreed to acquire
      from Victory New Holdings, Ltd., a British Virgin Islands Company (“Victory
      New”), the remaining 30% outstanding shares of Daqiuzhuang Metal. The mother of
      Henry Yu, our Chairman and CEO, is the sole shareholder of Victory New. For
      the
      acquisition, we agreed to issue an aggregate of 3,092,899 shares of Series
      A
      Preferred Stock at $0.001 par value.





· *Baotou
      Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd. (“Baotou Steel
      Pipe Joint Venture”)*





On
      April
      27, 2007, Daqiuzhuang Metal and Baotou Iron and Steel Group Co., Ltd. ("Baotou
      Steel") entered into an Amended and Restated Joint Venture Agreement (the
      "Agreement"), amending the Joint Venture Agreement entered into on September
      28,
      2005 ("Original Joint Venture Agreement"). The Amended and Restated Joint
      Venture Agreement has increased Daqiuzhuang Metal's ownership interest in the
      Joint Venture to 80%. The joint venture company’s name is Baotou Steel - General
      Steel Special Steel Pipe Joint Venture Company Limited (“Baotou Steel Pipe Joint
      Venture”). Baotou Steel will initially contribute RMB 10,000,000, or
      approximately $1,270,000 taking 20% ownership interest in the Baotou Steel
      Pipe
      Joint Venture. Daqiuzhuang Metal will initially contribute RMB 40,000,000,
      or
      approximately $5,130,000 taking 80% ownership interest in the Baotou Steel
      Pipe
      Joint Venture.





We
      have
      invested $1.56 million cash into this joint venture with the rest of the
      required register capital to be invested within a year. The remainder of the
      investment will come from the operating cash flow from Daqiuzhuang
      Metal.





Baotou
      Steel Pipe Joint Venture received its business license approval on May 25,
      2007.
      It has four production lines capable of producing 100,000 tons of double
      spiral-weld pipes. These pipes are used in the energy sector to transport
      natural gas, oil and steam. Pipes produced at the mill have a diameter ranging
      from 219-1240 mm; a wall thickness ranging from 6-13 mm; and a length ranging
      from 6-12 m. Final production capacity at the mill will reach 600,000 tons
      in
      2009. Additional products may also be added. Presently, Baotou Steel Pipe Joint
      Venture sells its products using an internal sales force to customers in the
      Inner Mongolia Autonomous Region and the northwest region of China.




18





This
      joint venture started production and testing operations in the second quarter
      2007 and began to generate revenue in the third quarter 2007.





· *Shaanxi
      Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”)*





On
      June
      15, 2007, through two subsidiaries, Daqiuzhuang Metal and Tianjin Qiu Steel
      Investment Co., Ltd., we entered into a joint venture agreement with Shaanxi
      Longmen Iron & Steel Group Co., Ltd. (“Long Steel Group”) to form Shaanxi
      Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”). Through our two
      subsidiaries, we invested approximately $39 million cash and collectively hold
      approximately 60% of the new joint venture.





Long
      Steel Group, located in Hancheng city, Shaanxi province, in China’s central
      region, was founded in 1958 and incorporated in 2002. In 2006, its reported
      sales revenue was 7.4 billion RMB (approximately $900 million). It is the
      largest steel company in the province. It has a total annual production capacity
      of 2.5 million tons. Last year, the Chinese National Statistics Bureau ranked
      it
      among the top 50 steel companies in China in terms of output.





Long
      Steel Group operates as a fully-integrated steel production facility, which
      means it is capable of taking iron-ore and other raw materials, processing
      them
      into crude steel and then processing the crude steel into finished steel
      products. Less than 10% of steel companies in China have fully-integrated steel
      production capacity.





Our
      joint
      venture, Longmen Joint Venture, assumes existing operating units of the Long
      Steel Group. The Long Steel Group contributed most of its working assets to
      the
      joint venture. Key units of the joint venture include:




· Shaanxi
      Longmen Iron and Steel Group Co., Ltd., (“Base Steel Operations”): Includes 8
      blast furnaces (total volume 1749 cubic meters), 4 converters (total load 150
      tons) and 1 continuous casting mill;




· Shaanxi
      Longmen Iron and Steel Group
      Co., Ltd., Xi’an Rolling Mill: Annual capacity is 700,000 tons of rebar -
      includes 1 semi-continuous mill line;




· Shaanxi
      Longmen Iron and Steel Group
      Co., Ltd., Mulonggou Mining Co.: An iron-ore mine with 150,000 tons annual
      capacity;




· Shaanxi
      Longmen Iron and Steel Group
      Co., Ltd., Changlong Transportation Co: A comprehensive transportation company
      combining railroad transportation, loading and discharging, maintenance as
      well
      as finished oil products and components - daily throughput capacity exceeds
      5000
      tons;




· Shaanxi
      Longmen Iron and Steel Group
      Co., Ltd., Hancheng Yulong Hotel: A 1 25
      room
      hotel and recreation complex catering to the regional construction and steel
      support industries;




· Shaanxi
      Yuxin Commercial Trading Co.,
      Ltd.; and




· Shaanxi
      Yuteng Commercial Trading Co.,
      Ltd.





Longmen
      Joint Venture employs approximately 5,000 full-time and 2,000 part-time
      workers.





The
      annual capacity at Longmen Joint Venture is 2.5 million tons of crude steel.
      It
      is the largest steel producer in Shaanxi province. In 2006, Long Steel Group
      recorded a shipment volume of 2.2 million tons of finished product, of which
      94%
      was reinforced bar steel (rebar - a commodity grade steel used in construction
      to reinforce concrete), with the remainder being roundbar, wire rod and related
      products. These products are primarily used in building and infrastructure
      construction.





Longmen
      Joint Venture’s products are categorized within the steel industry as “longs”
(referencing their shape). They are generally considered regional products
      because their size, weight and dimension make them ill-suited for cost-effective
      long-haul ground transportation. By our estimates, the provincial market demand
      for rebar is 6 - 8 million tons. Slightly more than half of the province demand
      radiates from Xi’an, the province capital, located 180 km from the joint venture
      main site. We estimate in Xi’an we have a 72% market share.





An
      established regional network of 27 agents and 2 sales offices sell the joint
      venture’s products. Agents account for approximately 66% of sales. All products
      sell under the registered brand name of “Yulong” which enjoys strong regional
      recognition and awareness. Rebar and billet products carry ISO 9001 and 9002
      certification and many other products have won national quality awards. Products
      produced at the facility have been used in the construction of the Yangtze
      River
      Three Gorges Dam, Xi’an International Airport, the Xi Han, Xi Tong and Xi Da
      provincial expressways, and are currently being used in the construction of
      the
      Xi’an city subway system.




19





On
      September 24, 2007, Longmen Joint Venture acquired controlling interest in
      two
      subsidiaries of the Long Steel Group.





The
      Longmen Joint Venture entered into an equity transfer agreement with Long Steel
      Group to acquire its 74.92% ownership interest in its subsidiary, Longmen Iron
      and Steel Group Co., Ltd. Environmental Protection Industry Development Co.,
      Ltd. (“EPID”). The Joint Venture paid RMB 18,080,930 (approximately $2,380,000)
      in exchange for the ownership interest. The facility utilizes solid waste
      generated from the steel making process to produce products such as construction
      materials, building blocks, landscape tiles, curb tops, ornamental tiles,
      etc.





At
      the
      same time, the Longmen Joint Venture also entered into a second equity agreement
      with the Long Steel Group to acquire its 36% ownership interest in its
      subsidiary, Longmen Iron and Steel Group Co., Ltd. Hualong Fire Retardant
      Materials Co., Ltd. (“Hualong”). The Joint Venture paid RMB 3,287,980
      (approximately $430,000) in exchange for the ownership interest. The Joint
      Venture is the largest shareholder in the company. The facility produces
      fire-retardant materials used in various processes in the production of
      steel.





Summary
      of Significant Growth and Change in 2007





As
                of December 31, 2006
            
            As
                of December 31, 2007Number
                of Main Subsidiaries
            
            1
            
            3Production
                Capacity (ton)
            
            400,000
            
            3
                millionMain
                Product Categories
            
            1
            
            3Number
                of Sales Offices
            
            3
            
            6Number
                ofFull-time
                Employees
            
            1,250
            
            6,200Exchange
                Listing
            
            OTCBB
            
            AMEX*





*
      On
      March 6, 2008, we migrated to the NYSE Arca





**Stock
      listing**





We
      obtained listing approval from American Stock Exchange (AMEX) on September
      28,
      2007. The stock officially started to trade on AMEX on October 3, 2007 under
      the
      ticker symbol, “GSI”. On March 6, 2008, we migrated from the AMEX to the NYSE
      Arca and officially started to trade under the same ticker symbol,
“GSI”.





**Factors
      affecting our operating results**





Demand
      for our products





Overall,
      domestic economic growth is an important demand driver of our products.
      According to estimates by Deutsche Bank, China’s economy will grow by
      approximately 10% in 2008. Specifically, industry demand drivers for our
      products include construction and infrastructure projects, rural income growth
      and energy demand.





At
      Longmen JV, growth in regional construction and infrastructure projects drives
      demand for our products. According to the 11 th Five
      Year National Economic Plan (2006-2010), development of China’s western region
      is one of the top-five economic priorities of the nation. Shaanxi, the province
      where Longmen JV is located, has been designated as the bridgehead for
      development into the western region, and Xi’an, the provincial capital has been
      designated as the focal point for this development. Our Longmen Joint Venture
      is
      180 km from Xi’an and does not have another major competitor within a 250km
      radius. According to a Shaanxi provincial government report issued January
      16,
      2008, there are 150 construction and infrastructure projects scheduled to begin
      in 2008. Some of the major projects include: six new highways, one new airport,
      expansion of the Xi’an airport, a new ring subway system and 3 new dams. We see
      strong and demand for our products driven by these and many other construction
      and infrastructure projects. We believe there will be sustained regional demand
      for several years ahead as the government continues to drive western region
      development efforts.




20





At
      Daqiuzhuang Metal, rural income growth drives demand for our hot-rolled carbon
      sheets. According to the Asian Development Bank statistics, well over 60% of
      the
      nations’ 1.3 billion total population is comprised of low-income, rural farmers.
      Our steel sheets are used in the construction of light agricultural vehicles
      targeted for sale to low-income, rural farmers. We believe are sheets are
      lighter and of greater ductility than those of our competitors and are preferred
      by manufacturers of light agricultural vehicles. According to the 11 th Five
      Year National Economic Plan (2006-2010), raising the level of rural income
      is a
      top economic and social goal for the country. Many government programs,
      including removing agricultural taxes and special local product taxes, designed
      to spur rural income development have been initiated. The government expects
      annual rural income to grow between 5% and 10% through 2010. Transportation
      asset growth only slightly lags the growth in rural net income, so we anticipate
      demand for light agricultural vehicles to grow between 4.7% and 9.6% through
      2010.





At
      Baotou
      Steel Pipe Joint Venture, energy sector growth for the need to transport oil,
      natural gas and steam drive demand for spiral-weld steel pipe. The West-East
      pipeline that will bring oil and natural gas from the Xinjiang Uyghur Autonomous
      Region to large eastern seaboard cities will be the largest single demand driver
      for our pipes. This pipeline starts in China’s far western Xinjiang Uyghur
      Autonomous Region and stretches 4000km through ten regions, provinces and
      municipalities before its point of termination in Zhejiang province. This
      pipeline will commence construction in the first quarter of 2008. Presently,
      demand is fueled by smaller pipeline projects and municipal energy
      infrastructure projects.





Supply
      of
      raw materials





Our
      primary raw materials consist of iron-ore and hot-rolled steel coil. Longmen
      Joint Venture uses iron-ore as its main raw material; Daqiuzhuang Metal and
      Baotou Steel Pipe Joint Venture use hot-rolled steel coil as their main raw
      materials. Iron-ore is the main raw material used to produce hot-rolled steel
      coil, so the price of iron-ore is the primary raw material costs driver for
      our
      products.





Longmen
      Joint Venture produces 2.5 million tons of our aggregate 3 million tons annual
      production. At Longmen Joint Venture, 90% of production costs are raw materials,
      with iron-ore being the largest component.





Nationwide,
      over the course of 2007, there has been an upward trend in the price of
      iron-ore. From January to December, the average price per ton of iron-ore
      increased from approximately RMB 1,300 per ton to RMB 1,700. We expect the
      overall cost of iron-ore will continue to increase through the end of
      2008.





According
      to the China Iron and Steel Association, approximately, 60% of the China
      domestic steel industry demand for iron-ore must be filled by imports. At
      Longmen Joint Venture, we purchase iron-ore from four primary sources: the
      Mulonggou mine (owned by the Joint Venture), the Daxigou mine (owned by our
      joint venture partner), surrounding small local mines and from abroad. The
      Daxigou mine has 300 million tons of proven iron-ore reserves, of which only
      approximately 950,000 tons have been excavated. According to the terms of our
      Joint Venture agreement with the strategic partner, we have first rights of
      refusal for sales and development from this mine.





We
      source
      approximately 15% of our iron-ore from the Mulonggou and Daxigou mines, 70%-75%
      from local mines and only 10-15% of our iron-ore from abroad. Sourcing from
      the
      Mulonggou and Daxigou mines is approximately 50% cheaper than sourcing from
      the
      spot market. In 2008, we aim to increase the percentage of iron ore sourced
      from
      Mulonggou and Daxigou mines from approximately 15% to 30%. We anticipate this
      will increase our gross margin between 1.5% and 2.0%. We believe gaining greater
      direct control over our key raw material inputs is important for both margin
      protection and secured source protection.





Industry
      Consolidation





In
      2007,
      the government held firm on its resolve to consolidate the highly fragmented
      domestic steel industry through coerced mergers and heightened operating
      requirements. In November 2007, the National Development and Reform Commission
      (NDRC), the nation’s top economic planner, reported that to date 29.4 million
      tons of outdated iron smelting capacity and 15.21 million tons of outdated
      steel
      smelting capacity had been eliminated. It also later announced obligation
      contracts with 18 provinces, autonomous regions and municipalities to eliminate
      49.31 million tons of outdated iron smelting capacity and 36.1 million tons
      of
      outdated steel smelting capacity. The obligation letters involved 573
      enterprises. It is the government’s goal to consolidate 50% of domestic
      production among the top 10 steel companies by 2010 with goal rising to 70%
      by
      2020.




21





We
      believe the government will continue, and likely strengthen, its industry
      consolidation effort. As capacity from weaker market players is removed,
      capacity allotments are shifted to existing companies, such as our Longmen
      Joint
      Venture.





**Operating
      Results**





***Sales
      Revenue and Gross Profit***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





Overall,
      net sales for the year 2007 were approximately $772.4 million compared to $139.5
      million in 2006, an increase of 454%. The sharp increase in net sales is a
      result of our acquiring controlling interest position in the Longmen Joint
      Venture in June, and to a lesser extent the starting of our Baotou Steel Pipe
      Joint Venture which began sales in July 2007.





At
      Daqiuzhuang Metal, shipments for the year 2007 decreased 5% to 322,912 tons
      from
      341,702 tons last year. In the third quarter we shifted our product mix to
      produce a higher percentage of silicon sheets, which are higher value-added
      products and command a higher selling price than our carbon sheets. Producing
      silicon sheets requires a longer processing time than carbon sheets, thus
      resulting in a lower total volume of shipped product from 2007 compared to
      2006.
      Average selling price per ton including sale of scrap for the year 2007
      increased to $457 from $422 in 2006. The increase in average selling price
      was
      mainly due to higher selling price achievable from sales of silicon sheets
      compared to carbon sheets.





At
      our
      Baotou Steel Pipe Joint Venture, shipments representing July through December
      operations in 2007 were 13,489 tons. Average selling price per ton was
      $474.





At
      our
      Longmen Joint Venture, shipments representing June through December operations
      in the 2007 were 1,440,522 tons. Average selling price per ton was
      $429.





The
      following table displays sales and steel shipment data for General Steel by
      operating unit for the years 2007 and 2006,
      respectively.


Year
                      2007
                  
                  
                  Year
                      2006Operating
                    Unit
                  
                  
                  Shipment
                      Volume
                  
                  
                  Sales
                      Amount
                  
                  
                  Shipment
                      Volume
                  
                  
                  Sales
                      Amount(in
                      Tons)
                  
                  
                  
                  
                  
                  (in
                      Tons)Daqiuzhuang
                      Metal
                  
                  
                  322,912
                  
                  $
                  147,727,340
                  
                  
                  341,702
                  
                  $
                  139,494,624Baotou
                      Steel Pipe Joint Venture
                  (e)
                  
                  13,489
                  
                  
                  6,397,364
                  
                  
                  -
                  
                  
                  -Longmen
                      Joint Venture
                  (f)
                  
                  1,440,522
                  
                  
                  618,314,461
                  
                  
                  -
                  
                  
                  -Totals
                  
                  
                  1,776,923
                  
                  $
                  772,439,165
                  
                  
                  341,702
                  
                  $
                  139,494,624


(e)
      Sales
      and shipment data from Baotou Steel Pipe Joint Venture are for the months from
      July through December only. Data reflects 100% of the Baotou Steel Pipe Joint
      Venture. General Steel, through its subsidiary, owns 80% of the Baotou Steel
      Pipe Joint Venture. The minority interest is removed after profits.





(f)
      Sales
      and shipment data from Longmen Joint Venture are for the months from June
      through December only. Data reflects 100% of the Longmen Joint Venture. General
      Steel, through its subsidiaries, owns 60% of the Longmen Joint Venture. The
      minority interest is removed after profits.




22





Gross
      profit for the year 2007 was approximately $56.7 million, an increase of 1259%
      or $52.5 million from $4.2 million for last year. Gross profit margin increased
      to 7% for the year 2007 from 3% for 2006.





The
      following table displays gross profit and gross margin data for General Steel
      by
      operating unit for the years 2007 and 2006, respectively.




Year
                2007
            
            
            Year
                2006Operating
                Unit
            
            
            
            
            Gross
                Profit
            
            
            Gross
                Margin
            
            
            Gross
                Profit
            
            
            Gross
                MarginDaqiuzhuang
                Metal
            
            
            
            $
            5,210,410
            
            
            3.53
            %
            $
            4,170,434
            
            
            2.99
            %Baotou
                Steel Pipe Joint Venture
            
            (g)
            
            
            386,249
            
            
            6.04
            %
            
            -
            
            
            -Longmen
                Joint Venture
            
            (h)
            
            
            51,092,102
            
            
            8.26
            %
            
            -
            
            
            -Totals
            
            
            
            $
            56,688,761
            
            
            7.34
            %
            $
            4,170,434
            
            
            2.99
            %





(g)
      Gross
      profit and gross margin data from Baotou Steel Pipe Joint Venture are for the
      months from July through December only. Data reflects 100% of Baotou Steel
      Pipe
      Joint Venture. General Steel, through its subsidiary, owns 80% of the Baotou
      Steel Pipe Joint Venture. The minority interest is removed after
      profits.





(h)
      Gross
      profit and gross margin data from Longmen Joint Venture are for the months
      from
      June through December only. Data reflects 100% of the Longmen Joint Venture.
      General Steel, through its subsidiaries, owns 60% of the Longmen Joint Venture.
      The minority interest is removed after profits.





***Fiscal
      year ended December 31, 2006 compared to Fiscal year ended December 31,
      2005***





Net
      sales
      from operations increased from $89.7 million in 2005 to $139.5 million in 2006,
      a 55% increase.





Shipment
      volume increased from 203,422 tons in 2005 to 341,702 tons in 2006, a 68%
      increase. In addition to the reasons cited above, this rise is also attributable
      to the fact that we instituted in the second quarter a credit system for our
      best customers. This allowed them to more easily purchase large quantities
      of
      product at a single time. Have larger quantities of inventory on hand made
      it
      easier for them to sell larger quantities.





The
      following table displays sales and steel shipment data for General Steel by
      operating unit for the years 2006 and 2005, respectively.




Year
                2006
            
            
            Year
                2005Operating
                Unit
            
            
            Shipment
                Volume
            
            
            Sales
                Amount
            
            
            Shipment
                Volume
            
            
            Sales
                Amount(in
                Tons)
            
            
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            341,702
            
            $
            139,494,624
            
            
            203,422
            
            $
            89,739,899Totals
            
            
            341,702
            
            $
            139,494,624
            
            
            203,422
            
            $
            89,739,899





Gross
      profit decreased from $8.6 million in 2005 to $4.2 million in 2006. In the
      same
      period gross profit margin decreased from 9.6% in 2005 to 3% in 2006,
      representing a 6% decrease.




23





The
      following table displays gross profit and gross margin data for General Steel
      by
      operating unit for the years 2006 and 2005, respectively.




Year
                2006
            
            
            Year
                2005Operating
              Unit
            
            
            Gross
                Profit
            
            
            Gross
                Margin
            
            
            Gross
                Profit
            
            
            Gross
                MarginDaqiuzhuang
                Metal
            
            $
            4,170,434
            
            
            2.99
            %
            $
            8,574,049
            
            
            9.55
            %Totals
            
            $
            4,170,434
            
            
            2.99
            %
            $
            8,574,049
            
            
            9.55
            %





***Cost
      of Sales***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





Overall
      cost of sales increased to $715.8 million for the year 2007 from $135.3 million
      for the year 2006, an increase of 429%. The sharp increase in cost of sales
      reflects our acquiring controlling interest position in the Longmen Joint
      Venture in June, and to a lesser extent, the starting of our Baotou Steel Pipe
      Joint Venture which began sales operations in July 2007.





At
      Daqiuzhuang Metal, average cost per ton was $441 and $396, respectively for
      the
      years 2007 and 2006. Cost of sales went up mainly due to the price increase
      in
      raw materials. Overall, our raw material feedstock costs were driven up by
      an
      increase in iron-ore prices. Additionally, we shifted our product mix to include
      a higher percentage of silicon sheets which have higher feedstock and processing
      costs than carbon steel sheets.





At
      our
      Baotou Steel Pipe Joint Venture, average cost per ton was $446, representing
      July through December operations in the year 2007.





At
      our
      Longmen Joint Venture, average cost per ton was $394, representing June through
      December operations in the year 2007.





The
      following table displays cost of sales and steel shipment data for General
      Steel
      by operating unit for the years 2007 and 2006, respectively.




Year
                2007
            
            
            Year
                2006Operating
                Unit
            
            
            
            Shipment
                Volume
            
            
            Cost
                of Sales
            
            
            Shipment
                Volume
            
            
            Cost
                of Sales(in
                Tons)
            
            
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            
            322,912
            
            $
            142,516,930
            
            
            341,702
            
            $
            135,324,190Baotou
                Steel Pipe Joint Venture
            
            (k)
            
            13,489
            
            
            6,011,115
            
            
            -
            
            
            -Longmen
                Joint Venture
            
            (l)
            
            1,440,522
            
            
            567,222,359
            
            
            -
            
            
            -Totals
            
            
            
            1,776,923
            
            $
            715,750,404
            
            
            341,702
            
            $
            135,324,190





(k)
      Cost
      of sales and shipment volume data from Baotou Steel Pipe Joint Venture are
      for
      the months from July through December only. Data reflects 100% of the Baotou
      Steel Pipe Joint Venture. General Steel, through its subsidiary, owns 80% of
      the
      Baotou Steel Pipe Joint Venture. The minority interest is removed after
      profits.





(l)
      Cost
      of sales and shipment volume data from Longmen Joint Venture are for the months
      from June through December only. Data reflects 100% of the Longmen Joint
      Venture. General Steel, through its subsidiaries, owns 60% of the Baotou Steel
      Pipe Joint Venture. The minority interest is removed after profits.




24





***Fiscal
      year ended December 31, 2006 compare to Fiscal year ended December 31,
      2005***





Cost
      of
      sales principally consists of the cost of raw materials, labor, utilities,
      manufacturing costs, manufacturing related depreciation and other fixed costs.
      Overall cost of sales increased to $135.3 million in 2006, from $81.2 million
      in
      2005, a 67% increase. Cost of sales as a percentage of sales increased from
      90%
      in 2005 to 97% in 2006, a 7% increase. The increase mainly due to the price
      increase in raw materials. Overall, our raw material feedstock costs were driven
      up by an increase in iron-ore prices.




The
      following table displays cost of sales and steel shipment data for General
      Steel
      by operating unit for the years 2006 and 2005, respectively.




Year
                2006
            
            
            Year
                2005Operating
                Unit
            
            
            Shipment
                Volume
            
            
            Cost
                of Sales
            
            
            Shipment
                Volume
            
            
            Cost
                of Sales(in
                Tons)
            
            
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            341,702
            
            $
            135,324,190
            
            
            203,422
            
            $
            81,165,850Totals
            
            
            341,702
            
            $
            135,324,190
            
            
            203,422
            
            $
            81,165,850





***Selling,
      General and Administrative Expenses***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





Selling,
      general and administrative expenses were $16.2 million for the year 2007,
      compared to $2.4 million for 2006. This increase is largely attributable to
      the
      operations of the Longmen Joint Venture, which began in June, and alone
      accounted for approximately $11.7 million in SG&A expense since June
      2007.





***Fiscal
      year ended December 31, 2006 compared with Fiscal year ended December 31,
      2005***





Selling,
      general and administrative expenses were $2.4 million for 2006, compared to
      $2.8
      million for the same period of 2005, a 13% decrease. A large component of the
      decrease was due to the reclassification of packaging expense back to cost
      of
      sales.





***Other
      income (expense)***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





Finance
      and interest expenses were $9.3 million for the year 2007, a 296% increase
      from
      $2.4 million for 2006. The increase is traced to an increase in short term
      borrowings largely associated with the Longmen Joint Venture
      operations.





Income
      from derivative instrument was $6.2 million for the year 2007, there was no
      derivative instrument for the year 2006. See more detail information in our
      footnote, Note 14 - Convertible notes.





***Fiscal
      year ended December 31, 2006 compared with Fiscal year ended December 31,
      2005***





Finance
      and interest expense was $2.4 million for the fiscal year ended December 31,
      2006, a 23% increase compared to $1.9 million in 2005. This increase was because
      the outstanding bank loans increased to $30.3 million from $27.1 million as
      of
      December 31, 2006 and 2005, respectively. This increase in debt borrowing was
      mainly used for financing our bulk purchases of raw materials and our credit
      program to our main customers.





***Net
      income***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





Net
      income was $22.4 million for the year 2007 compared to $1.0 million for the
      same
      period of 2006, an increase of 2,071%. The sharp increase is largely
      attributable to the contributions from the Longmen Joint Venture which began
      in
      June 2007 and the income of $6.2 million recorded for the change in fair value
      of the derivative instrument in connection with the issuance of the convertible
      notes in 2007.




25





***Earnings
      per share***





Earnings
      per share was $0.69 for the year 2007. Earnings per share are calculated as
      follows:





2007
            
            2006Income
                attributable to holders of common shares
            
            $
            22,425,921
            
            $
            1,033,208Basic
                weighted average number of common shares outstanding
            
            
            32,424,652
            
            
            31,250,000Add:
                dilution effect of warrants
            
            
            133,698
            
            
            -Diluted
                weighted average number of common shares outstanding
            
            
            32,558,350
            
            
            31,250,000Earnings
                per shareBasic
            
            $
            0.69
            
            $
            0.03Diluted
            
            $
            0.69
            
            $
            0.03





***Fiscal
      year ended December 31, 2006 compared with Fiscal year ended December 31,
      2005***





Net
      income was $1.0 million for the year 2006 compared to $2.7 million for the
      same
      period of 2005, a decrease of 62%.





Earnings
      per share are calculated as follows:





2006
            
            2005Net
                income
            
            $
            1,033,208
            
            $
            2,740,219Weighted-average
                  ofcommon stock o/s
            
            
            31,250,000
            
            
            31,250,000Earnings
                per share
            
            $
            0.03
            
            $
            0.09





***Income
      taxes***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





The
      Company did not carry on any business and did not maintain any branch office
      in
      the United States during the year 2007 and 2006. Therefore, no provision for
      withholding or U.S. federal income taxes or tax benefits on the undistributed
      earnings and/or losses of the Company has been made.





Pursuant
      to the relevant laws and regulations in the People's Republic of China,
      Daqiuzhuang Metal, as a foreign owned enterprise in the People's Republic of
      China, is entitled to an exemption from the PRC enterprise income tax for two
      years commencing from its first profitable year. Daqiuzhuang Metal has been
      approved for this tax benefit and will be exempt from income tax for the years
      ended December 31, 2005 and 2006 and 50% income tax reduction for the years
      ended December 31, 2007, 2008 and 2009. The current effective income tax rate
      is
      12%.




26





The
      effective income tax rate at our Baotou Steel Pipe Joint Venture is
      33%.





Our
      Longmen Joint Venture is located in the mid-west region of China. The National
      Development and Reform Commission (NDRC) granted it qualification approval
      to
      attain the “Go West” special tax treatment. This national tax treatment rewards
      companies contributing to the economic development of the Western Region by
      lowering their effective corporate tax rate from 33 percent to 15 percent.
      This
      change is effective July first and is reflected from our year-end financial
      results.





For
      the
      year 2007, we had a tax expense of $4.8 million.





***Fiscal
      year ended December 31, 2006 compared with Fiscal year ended December 31,
      2005***





We
      did
      not carry on any business and did not maintain any branch office in the United
      States during the years ended December 31, 2006 and 2005. Therefore, no
      provision for withholding or U.S. federal income taxes or tax benefits on our
      undistributed earnings and/or losses has been made.





Pursuant
      to the relevant laws and regulations in the People’s Republic of China,
      Daqiuzhuang Metal, as a Sino-foreign joint venture in the People’s Republic of
      China, is entitled to an exemption from the PRC enterprise income tax for two
      years commencing from its first profitable year. We are approved for this tax
      benefit and are exempt from income tax for the years ended December 31, 2005
      and
      2006. We are entitled to a 50% income tax reduction for the years ended December
      31, 2007, 2008 and 2009.





***Minority
      Interest***





Minority
      interest mainly represents Long Steel Group’s 40% interest in Longmen Joint
      Venture and Baotou Iron and Steel Group’s 20% interest in Baotou Steel Pipe
      Joint Venture, both of which we control.





***Accounts
      Receivable***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





Accounts
      receivable and accounts receivable-related party were $11.8 million as of
      December 31, 2007 compared to $17.1 million on December 31, 2006.





We
      recognize the revenue when we ship out products and pass the titles of the
      products to our customers and distributors. At Daqiuzhuang Metal, we extended
      short-term credit to our customers and distributors with good reputations and
      long-term business relationships. We have not experienced any bad debt in these
      accounts. Also we review our accounts receivable on a regular basis to determine
      if the bad debt allowance is adequate and adjust the allowance amount if needed.
      We believe the accounts receivable amount is collectible. Never-the-less, to
      be
      conservative and prudent in our management practice, as of December 31, 2007,
      we
      reserved $148,224 for bad debt allowance based on our reasonable
      estimate.





***Fiscal
      year ended December 31, 2006 compared with Fiscal year ended December 31,
      2005***





Accounts
      receivable were $17.1 million as of December 31, 2006 compared to $993,417
      at
      December 31, 2005. This increase in accounts receivable is mainly due to a
      change in the company’s collection approach. Starting in the second quarter of
      2006, we have gone with a different collection methodology. We implemented
      a
      credit sales program for our main customers with whom we have a long-standing
      business relationship. We now have four new production lines in operation.
      The
      management is now taking measures to secure the existing customer base and
      attract new customers. One of the approaches is to extend credit sales to our
      major customers and distributors as incentives for buying our products.
      Extending credit to our major customers and distributors is also in line with
      a
      growing industrial trend in this competitive market.





We
      recognize the revenue when we ship out products and passed the titles of the
      products to our customers and distributors.  We have increased production
      capacity since April this year. To enhance sales, we extended short-term credit
      to our customers and distributors with good reputations and long-term business
      relationships. We have not experienced any bad debt in these accounts. Also
      we
      review our accounts receivable on a regular basis to determine if the bad debt
      allowance is adequate and we adjust the allowance amount if needed. We believe
      the accounts receivable are collectible. Never-the-less, to be conservative
      and
      prudent in our management practice, as of December 31, 2006, we have decided
      to
      reserve $137,132 for bad debts based on our reasonable estimate.




27





***Liquidity
      and capital resources***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





Due
      to
      the strong market demand for our products and our new Longmen Joint Venture,
      we
      plan to maintain a higher-than-average debt to equity ratio to better position
      ourselves in this fast growing market. The bank loans are considered short
      term
      for the purpose of the preparation of the financial statements though they
      are
      renewable with the banks every year. Cash balance including restricted cash
      amounted to $52.1 million and $11.1 million as of December 31, 2007 and December
      31, 2006, respectively.





***Fiscal
      year ended December 31, 2006 compared with Fiscal year ended December 31,
      2005***





Due
      to
      the strong market demand for our products, we increased production capacity
      by
      adding four new production lines. We plan to maintain a higher-than-average
      debt
      to equity ratio to better position itself in this fast growing market. The
      bank
      loans are considered short term for the purpose of the preparation of the
      financial statements because they are renewable with the banks every year.
      Due
      to the recent joint venture agreement with Baotou Iron and Steel (Group) Co.,
      Ltd., we are reserving cash for the first 30% of its capital contribution,
      approximately $3.7 million, which needs to be paid when the business license
      for
      the joint venture is issued. Cash balance including restricted cash amounted
      to
      $11.1 million and $11.4 million as of December 31, 2006 and 2005.





***Operating
      activities***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





Net
      cash
      provided by operating activities for the year 2007 was $39.0 million compared
      to
      $0.9 million used in 2006. This change was mainly due to the combination of
      the
      following factors:





Net
      cash
      generated in 2007 was primarily attributable to net income of $22.4 million
      adjusted by depreciation and amortization, minority interest and gain on
      derivative instrument, total of $16.1 million. Cash collected from accounts
      receivable and accounts receivable-related party was $16.2 million in 2007
      compared a negative amount of $15.9 million in 2006. Notes receivable and other
      receivable in total had a cash outflow of $12.1 million in 2007 compared to
      $1.5
      million in 2006. Increase in inventory and advances on inventory purchases
      resulted in a cash outflow of $63.4 million compared to an inflow of $7.2
      million in 2006.





Accounts
      payable, other payables, accrued liabilities, customer deposits and tax payable
      went up by $60.7 million compared to $4.9 million in 2006.





Changes
      in these accounts were mainly resulted from the acquisitions of the Boutou
      Steel
      Pipe Joint Venture and Longmen Joint Venture. The increased operating capacity
      helped the company generate positive cash flows from operating
      activities.





***Fiscal
      year ended December 31, 2006 compared with Fiscal year ended December 31,
      2005***





Net
      cash
      used in operating activities for the fiscal year ended December 31, 2006 was
      $0.9 million compared to $10.0 million provided by operating activities in
      2005. This change was mainly due to an increase in accounts receivable and
      offset by a decrease in advances on inventory purchases. Accounts receivable
      increased by $15.9 million compared to December 31, 2005. The increase is due
      to
      the credit sales we extended to our major customers and distributors as
      incentives starting from the second quarter of 2006. As the new production
      lines
      are now in full operation, approximately 13,000 tons of additional products
      are
      now being produced monthly.




28





***Investing
      activities***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





Net
      cash
      used by investing activities was $15.1 million for the year 2007 compared to
      $5.9 million used in 2006. This increase in cash used in investing activities
      mainly resulted from a $21.5 million on equipment purchase.





***Fiscal
      year ended December 31, 2006 compared with Fiscal year ended December 31,
      2005***





Net
      cash
      used in investing activities was $5.9 million for the fiscal year ended December
      31, 2006 compared to $7.9 million used in investing activities in the previous
      year. The cash has been spent on the construction of the new plant.





***Financing
      activities***





***Fiscal
      year ended December 31, 2007 compared with Fiscal year ended December 31,
      2006***





Net
      cash
      provided by financing activities was $12.8 million for the year 2007 compared
      to
      $4.7 million in 2006. This was mainly due to $40 million in convertible notes
      issued in 2007 offset by payoffs of various short term loans and notes
      payable.




***Fiscal
      year ended December 31, 2006 compared with Fiscal year ended December 31,
      2005***





Net
      cash
      provided by financing activities was $4.7 million for the year ended December
      31, 2006 compared to $0.8 million provided by investing activities of the
      previous year. We signed a borrowing agreement with Shenzhen Development Bank
      to
      borrow $5,1 in the first quarter. The proceeds were mainly used to pay for
      inventory purchases and the construction of the new plant.





***Impact
      of inflation***




We
      are
      subject to commodity price risks arising from price fluctuations in the market
      prices of the raw materials. We have generally been able to pass on cost
      increases through price adjustments. However, the ability to pass on these
      increases depends on market conditions driven by the overall economic conditions
      in China. We manage our price risks through productivity improvements and
      cost-containment measures. We do not believe that inflation risk is material
      to
      our business or our financial position, results of operations or cash
      flows.




***Compliance
      with environmental laws and regulations***





**Longmen
      Joint Venture:**





Since
      2002, our joint venture partner, Long Steel Group, has invested RMB 580 million
      (approximate $76 million) in a series of comprehensive projects to reduce its
      waste emissions of coal gas, water, and solid waste. In 2005 it received ISO
      14001 certification for its overall environmental management system. Long Steel
      Group has received several awards from the Shaanxi provincial government for
      its
      increasing effort in environmental protection.





Long
      Steel Group has spent more than RMB 33 million (approximately $4.3 million)
      on a
      comprehensive waste water recycling and water treatment system. The 2,000m3/h
      treatment capacity system was implemented at the end of 2005. In 2007, new
      water
      consumption per ton of steel produced was 0.7 ton.





Long
      Steel Group has built one 10,000m3 coke-oven gas tank and one 50,000m3 blast
      furnace coal gas tank to collect the residual coal gas produced from its own
      facility and that of surrounding enterprises. Long Steel Group also built a
      thermal power plant with two 25 KW dynamos that uses the residual coal gas
      from
      the blast furnaces and converters as fuel to generate power.




29





Long
      Steel Group also has built several plants to further process solid waste
      generated from the steel making process into useful products such as
      construction materials, building blocks, porcelain tiles, curb tops, ornamental
      tiles, etc. The plants are capable of processing 400,000 tons of solid waste
      and
      generate revenue of more than RMB20 million (approximately $2.6 million) each
      year.





**Daqiuzhuang
      Metal:**





Based
      on
      the equipment, technologies and measures adopted, Daqiuzhuang Metal is not
      considered a high-pollution factory in China. The production process does not
      need much water and produces only a minimal amount of chemical waste.
      Daqiuzhuang Metal uses gas-fired reheat furnaces recommended by the State
      Environmental Protection Agency to heat raw materials and semi-finished
      products.





In
      2005,
      Daqiuzhuang County ordered an environmental clean-up campaign and required
      harmless waste water discharge to be reduced. In order to meet these
      requirements, we invested $94,190 to remodel our industrial water recycling
      system to reduce new water consumption and industrial water
      discharge.





This
      wastewater recycling system is able to process 350 tons of wastewater daily.
      We
      can realize approximately $10,000 savings per year using this
      system.





We
      believe that future costs relating to environmental compliance will not have
      a
      materially adverse effect on the Company’s financial position. There is always
      the possibility, however, that unforeseen changes, such as new laws or
      enforcement policies, could result in materially adverse costs.





***Off-balance
      sheet arrangements***




On
      January 14, 2008, the Company through Longmen Joint Venture completed its
      acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co.,
      Ltd.
      (“Tongxing”). Longmen Joint Venture entered into an agreement with Tongxing to
      contribute its own land of 217,487 square meters (approximately 53 acres) at
      the
      appraised value of RMB 30,227,333 (approximately $4.1 million). Pursuant to
      the
      agreement, the land will be converted into shares valued at approximately RMB
      22,744,419 (approximately $3.1 million), providing Longmen Joint Venture with
      a
      stake of 22.76% in Tongxing and making it Tongxing’s largest and controlling
      shareholder.





The
      business license of Tongxing was obtained on December 27,.





***Critical
      Accounting Policies***





Management’s
      discussion and analysis of its financial condition and results of operations
      are
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States.
      Our financial statements reflect the selection and application of accounting
      policies which require management to make significant estimates and judgments.
      See note 2 to our consolidated financial statements, “Summary of Significant
      Accounting Policies.” Management bases its estimates on historical experience
      and on various other assumptions that are believed to be reasonable under the
      circumstances. Actual results may differ from these estimates under different
      assumptions or conditions.




We
      believe that the following reflect the more critical accounting policies that
      currently affect our financial condition and results of operations.





Revenue
      recognition





The
      Company's revenue recognition policies are in compliance with Staff Accounting
      Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
      customers when a formal arrangement exists, the price is fixed or determinable,
      the delivery is completed, no other significant obligations of the Company
      exist
      and collectability is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are recorded as customer deposits.
      Sales revenue represents the invoiced value of goods, net of value-added tax
      (VAT). All of the Company’s products sold in the PRC are subject to a Chinese
      value-added tax at a rate of 13% to 17% of the gross sales price. This VAT may
      be offset by VAT paid by the Company on raw materials and other materials
      included in the cost of producing the finished product.




30





Use
      of
      estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles of the United States of America requires management to
      make estimates and assumptions that affect the amounts reported in the financial
      statements and accompanying notes. Significant accounting estimates reflected
      in
      the Company’s financial statements include the useful lives of and impairment
      for property, plant and equipment, potential losses on uncollectible receivables
      and convertible notes. Actual results could differ from these
      estimates.





Derivative
      Instrument





The
      Company entered into a Securities Purchase Agreement (the “Agreement”) with
      certain institutional investors (the “Buyers”). Pursuant to the Agreement, the
      Company agreed to sell to the Buyers (i) senior convertible notes in the
      aggregate principal amount of $40,000,000 (“Notes”) and (ii) warrants to
      purchase an additional aggregate amount of 1,154,958 shares of Common Stock
      of
      the Company (the “Warrants”). Both the Warrants and the conversion option
      embedded in the Notes meet the definition of a derivative instrument in SFAS
      133, Accounting for Derivative Instruments and Hedging Activities. Therefore
      these instruments are accounted for as derivative liabilities and periodically
      marked-to-market. The change in the value of the derivative liabilities is
      charged against or credited to income.





Financial
      instruments





Statement
      of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
      Value of Financial Instruments” requires disclosure of the fair value of
      financial instruments held by the Company. SFAS 107 defines the fair value
      of
      financial instruments as the amount at which the instrument could be exchanged
      in a current transaction between willing parties.





The
      Company considers the carrying amount of cash, accounts receivable, other
      receivables, accounts payable, accrued liabilities, and long term debts to
      approximate their fair values because of the short period of time between the
      origination of such instruments and their expected realization and their current
      market rate of interest.





The
      Company also analyzes all financial instruments with features of both
      liabilities and equity under SFAS 150, “Accounting for Certain Financial
      Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company’s Own Stock.” The convertible preferred shares issued in
      2005 and the convertible note issued in 2007 did not require bifurcation or
      result in liability accounting. Additionally, the Company analyzes registration
      rights agreements associated with any equity instruments issued to determine
      if
      penalties triggered for late filing should be accrued under FSP EITF 00-19-2,
      “Accounting for Registration Payment Arrangements.”





***New
      Accounting Pronouncements***





In
      September 2006, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements”
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
      fair value under accounting principles generally accepted in the United States
      (GAAP) and expands disclosures about fair value measurements. Fair value is
      defined under SFAS 157 as the exchange price that would be received for an
      asset
      or paid to transfer a liability (an exit price) in the principal or most
      advantageous market for the asset or liability in an orderly transaction between
      market participants on the measurement date. SFAS 157 also establishes a fair
      value hierarchy which requires the Company to maximize the use of observable
      inputs and minimize the use of unobservable inputs when measuring fair value.
      The effective date of this pronouncement is for all full fiscal and interim
      periods beginning after November 15, 2008. The Company does not expect the
      adoption of SFAS 157 to have a material impact on the Company’s financial
      position or results of operations.




31





In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities—including an amendment of FASB Statement No.
      115 (“FAS 159”). FAS 159 permits companies to choose to measure many financial
      instruments and certain other items at fair value that are not currently
      required to be measured at fair value. The objective of FAS 159 is to provide
      opportunities to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply hedge
      accounting provisions. FAS 159 also establishes presentation and disclosure
      requirements designed to facilitate comparisons between companies that choose
      different measurement attributes for similar types of assets and liabilities.
      SFAS 159 will be effective in the first quarter of fiscal 2009. The Company
      is
      evaluating the impact that this statement will have on its consolidated
      financial statements.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      the
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest, changes in a parent’s ownership interest and the
      valuation of retained non-controlling equity investments when a subsidiary
      is
      deconsolidated. The Statement also establishes reporting requirements that
      provide sufficient disclosures that clearly identify and distinguish between
      the
      interests of the parent and the interests of the non-controlling owners. SFAS
      160 is effective for fiscal years beginning after December 15, 2008. The Company
      has not determined the effect that the application of SFAS 160 will have on
      its
      consolidated financial statements.





In
      December 2007, Statement of Financial Accounting Standards No. 141(R), Business
      Combinations, was issued. SFAS No. 141R replaces SFAS No. 141, Business
      Combinations. SFAS 141R retains the fundamental requirements in SFAS 141 that
      the acquisition method of accounting (which SFAS 141 called the purchase method)
      be used for all business combinations and for an acquirer to be identified
      for
      each business combination. SFAS 141R requires an acquirer to recognize the
      assets acquired, the liabilities assumed, and any noncontrolling interest in
      the
      acquiree at the acquisition date, measured at their fair values as of that
      date,
      with limited exceptions. This replaces SFAS 141’s cost-allocation process, which
      required the cost of an acquisition to be allocated to the individual assets
      acquired and liabilities assumed based on their estimated fair values. SFAS
      141R
      also requires the acquirer in a business combination achieved in stages
      (sometimes referred to as a step acquisition) to recognize the identifiable
      assets and liabilities, as well as the noncontrolling interest in the acquiree,
      at the full amounts of their fair values (or other amounts determined in
      accordance with SFAS 141R). SFAS 141R applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008. An entity
      may not apply it before that date. The Company is currently evaluating the
      impact that adopting SFAS No. 141R will have on its financial
      statements.





In
      March
      2008, the
      FASB
      issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
      Activities - an amendment of FASB Statement No. 133” (“SFAS 161”), which changes
      the disclosure requirements for derivative instruments and hedging activities.
      Entities are required to provide enhanced disclosures about (a) how and why
      an
      entity uses derivative instruments, (b) how derivative instruments and related
      hedged items are accounted for under Statement 133 and its related
      interpretations, and (c) how derivative instruments and related hedged items
      affect an entity’s financial position, financial performance and cash flows.
      SFAS 161 is effective for financial statements issued for fiscal years and
      interim periods beginning after November 15, 2008. The Company has not
      determined the effect that the application of SFAS 161 will have on its
      consolidated financial statements.





**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES**





Our
      management, including our chief executive officer, or CEO, and our principal
      financial officer, or CFO, are responsible for establishing and maintaining
      our
      disclosure controls and procedures (within the meaning of Rule 13a-15(e) of
      the
      Exchange Act). These controls and procedures were designed to ensure that
      information required to be disclosed in the reports that we file or submit
      under
      the Exchange Act, is recorded, processed, summarized and reported within the
      time periods specified in the rules and forms of the SEC and that such
      information was accumulated and communicated to our management, including our
      CEO and CFO, as appropriate to allow timely decisions regarding required
      disclosure. We evaluated these disclosure controls and procedures under the
      supervision of our CEO and CFO as of December 31, 2007. Based upon that
      evaluation, our management, including our CEO and CFO, concluded that our
      disclosure controls and procedures are effective.




32




**MANAGEMENT’S
      ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**





We
      performed an evaluation of the effectiveness of our internal control over
      financial reporting that is designed by, or under the supervision of, our
      principal executive and principal financial officers, and effected by our board
      of directors, management and other personnel, to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with GAAP and includes
      those policies and procedures that:




·
            pertain
                to the maintenance of records that in reasonable detail accurately
                and
                fairly reflect the transactions and dispositions of the assets of
                the
                Company;




·
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that receipts and expenditures of the
                Company
                are being made only in accordance with authorizations of management
                and
                directors of the Company; and




·
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of the Company’s assets that
                could have a material effect on the financial statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Projections of any evaluation of effectiveness
      to future periods are subject to the risk that controls may become inadequate
      because of changes in conditions, or that the degree of compliance with the
      policies or procedures may deteriorate.




Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of the effectiveness of our internal control over financial reporting
      as of December 31, 2007. Based on such evaluation, our management, including
      the
      CEO and CFO, has concluded that the Company’s internal control over financial
      reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities
      Exchange Act of 1934, as amended) as of December 31, 2007 is effective.
      Notwithstanding the foregoing, there can be no assurance that the Company’s
      internal control over financial reporting will detect or uncover all failures
      of
      persons within the Company to comply with these procedures.




This
      annual report does not include an attestation report of our registered public
      accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by our registered public
      accounting firm pursuant to temporary rules of the SEC that permit us to provide
      only management’s report in this annual report.




There
      were no changes in the Company’s internal control over financial reporting that
      occurred during the year ended December 31, 2007 that have materially affected,
      or are reasonably likely to materially affect, our internal control over
      financial reporting.





**Contractual
      obligations and commercial commitments**




We
      have
      certain fixed contractual obligations and commitments that include future
      estimated payments. Changes in our business needs, cancellation provisions,
      changing interest rates, and other factors may result in actual payments
      differing from the estimates. We cannot provide certainty regarding the timing
      and amounts of payments. We have presented below a summary of the most
      significant assumptions used in our determination of amounts presented in the
      tables, in order to assist in the review of this information within the context
      of our consolidated financial position, results of operations, and cash
      flows.




33





The
      following tables summarize our contractual obligations as of December 31, 2007,
      and the effect these obligations are expected to have on our liquidity and
      cash
      flows in future periods.





Payment
                due by periodContractual
                obligations
            
            Total
            
            Less
                than 1 year
            
            1-3
                years
            
            3-5
                yearsDollars
                amounts in thousandsBank
                loans (1)
            
            $
            119,493
            
            $
            119,493
            
            
            
            
            $
            $Notes
                payable
            
            
            15,163
            
            
            15,163Deposits
                due to customers and sales representatives
            
            
            47,084
            
            
            47,084Convertible
                notes ( Principal plus Interest )
            
            
            54,000
            
            
            1,200
            
            
            4,800
            
            
            48,000Total
            
            $
            235,740
            
            $
            182,940
            
            $
            4,800
            
            $
            48,000




(1)
      Bank
      loans in China are due on demand or normally within one year. These loans can
      be
      renewed with the banks. This amount includes estimated interest payments as
      well
      as debt maturities.





**ITEM
      7A.** **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





Commodity
      Price Risk and Related Risks





In
      the
      normal course of our business, we are exposed to market risk or price
      fluctuations related to the purchase, production or sale of steel products
      over
      which we have little or no control. We do not use any derivative commodity
      instruments to manage the price risk. Our market risk strategy has generally
      been to obtain competitive prices for our products and allow operating results
      to reflect market price movements dictated by supply and demand. Based upon
      an
      assumed 2007, annual production capacity of 2
      million
      tons of steel, a $1 change in the annual average price would change annual
      pre-tax profits by approximately $2 million.





Interest
      Rate Risk





We
      are
      subject to interest rate risk since our outstanding debts are short-term and
      bear interest at variable interest rates. The future interest expense would
      fluctuate in case of any change in the borrowing rates. We do not use swaps
      or
      other interest rate protection agreements to hedge this risk. We believe our
      exposure to interest rate risk is not material.





Foreign
      Currency Exchange Rate Risk





Our
      operating units, Daqiuzhuang Metal, Longmen Joint Venture and Baotou Steel
      Pipe
      Joint Venture, are all located in China. They produce and sell all
      of  their
      products domestically in the P.R.C.. They are
      subject to the foreign currency exchange rate risks due to the effects of
      fluctuations in the Chinese Renminbi on revenues and operating costs and
      existing assets or liabilities. We have not generally used derivative
      instruments to manage this risk. A ten percent (10%) decrease in the
      200 7 average
      Renminbi exchange rate would result in a $1,800,000 charge
      to income.





**ITEM
      8. FINANCIAL STATEMENTMENTS AND SUPPLEMENTARY DATA**





The
      consolidated financial statements
      of General Steel Holdings, Inc., including consolidated balance sheets as of
      December 31, 2007 and 2006, and consolidated statements of income and other
      comprehensive income, stockholders’ equity and cash flows for the years ended
      December 31, 2007, 2006 and 2005 and notes to the consolidated financial
      statements, together with a report thereon of Moore Stephens Wurth Frazer and
      Torbet, LLP, dated March 31, 2008, are attached hereto as pages F-1 through
      F-34.




34


**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
  To
        the
        Board of Directors and Stockholders of
 General
        Steel Holdings Inc.
 
 We
        have
        audited the accompanying consolidated balance sheets of General Steel Holdings
        Inc. and subsidiaries as of December 31, 2007 and 2006, and the related
        consolidated statements of income and other comprehensive income, shareholders’
equity, and cash flows for each of the years in the three-year period ended
        December 31, 2007. General Steel Holdings, Inc.’s management is responsible for
        these financial statements. Our responsibility is to express an opinion on
        these
        financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The company is not required
        to
        have, nor were we engaged to perform, an audit of their internal control
        over
        financial reporting. Our audit included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, assessing the accounting principles used and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
  In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of General Steel Holdings
        Inc.
        and subsidiaries as of December 31, 2007 and 2006, and the results of their
        operations and their cash flows for each of the years in the three-year period
        ended December 31, 2007 in conformity with accounting principles generally
        accepted in the United States of America.
   /S/
        MOORE
        STEPHENS WURTH FRAZER AND TORBET, LLP
 Walnut,
        California
 March
        28,
        2008
 
 F-1




GENERAL
        STEEL HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED
          BALANCE SHEETS AS
            OF
            DECEMBER 31, 2007 AND 2006
  2007
              
              2006ASSETSCURRENT
                  ASSETS:Cash
              
              $
              43,713,346
              
              $
              6,831,549Restricted
                  cash
              
              
              8,391,873
              
              
              4,231,523Accounts
                  receivable, net of allowance for doubtful accounts of
                  $148,224and
                  $137,132 as of December 31, 2007 and December 31, 2006,
                  respectively
              
              
              11,225,678
              
              
              17,095,718Accounts
                  receivable - related parties
              
              
              565,631
              
              
              -Notes
                  receivable
              
              
              4,216,678
              
              
              537,946Notes
                  receivable - Restricted
              
              
              12,514,659
              
              
              -Short
                  term loan receivable - Related Party
              
              
              1,233,900
              
              
              -Other
                  receivables
              
              
              1,280,853
              
              
              268,784Other
                  receivables - related parties
              
              
              1,913,448
              
              
              850,400Inventories
              
              
              77,928,925
              
              
              12,489,290Advances
                  on inventory purchases
              
              
              58,170,474
              
              
              2,318,344Advances
                  on inventory purchases - related parties
              
              
              9,944,012
              
              
              -Prepaid
                  expenses - current
              
              
              1,059,866
              
              
              46,152Prepaid
                  expenses related party - current
              
              
              49,356
              
              
              -Deferred
                  tax assets
              
              
              399,751
              
              
              -Deferred
                  notes issuance cost
              
              
              3,564,546
              
              
              -Total
                  current assets
              
              
              236,172,996
              
              
              44,669,706PLANT
                  AND EQUIPMENT, net
              
              
              218,263,367
              
              
              26,606,594OTHER
                  ASSETS:Advances
                  on equipment purchases
              
              
              742,061
              
              
              -Long
                  term investment
              
              
              822,600
              
              
              -Prepaid
                  expenses - non current
              
              
              506,880
              
              
              740,868Prepaid
                  expenses related party - non current
              
              
              142,467
              
              
              -Intangible
                  assets, net of accumulated amortization
              
              
              21,756,709
              
              
              1,804,440Total
                  other assets
              
              
              23,970,717
              
              
              2,545,308Total
                  assets
              
              $
              478,407,080
              
              $
              73,821,608LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              102,241,708
              
              $
              3,001,775Accounts
                  payable - related parties
              
              
              14,302,738
              
              
              -Short
                  term loans - bank
              
              
              93,019,608
              
              
              30,284,686Short
                  term loans - others
              
              
              19,156,070
              
              
              -Short
                  term loans - related parties
              
              
              7,317,027
              
              
              -Short
                  term notes payable
              
              
              15,163,260
              
              
              8,153,520Other
                  payables
              
              
              3,343,684
              
              
              355,142Other
                  payable - related parties
              
              
              2,126,383
              
              
              -Accrued
                  liabilities
              
              
              5,248,863
              
              
              1,064,012Customer
                  deposits
              
              
              37,872,698
              
              
              1,093,602Customer
                  deposits - related parties
              
              
              9,211,736
              
              
              -Deposits
                  due to sales representatives
              
              
              3,068,298
              
              
              2,051,200Taxes
                  payable
              
              
              27,576,240
              
              
              5,391,602Investment
                  payable
              
              
              6,580,800
              
              
              -Distribution
                  payable to minority shareholder
              
              
              2,820,803
              
              
              -Shares
                  subject to mandatory redemption
              
              
              -
              
              
              2,179,779Total
                  current liabilities
              
              
              349,049,916
              
              
              53,575,318NOTES
                  PAYABLE, net of debt discount $34,559,584
              
              
              5,440,416
              
              
              -DERIVATIVE LIABILITIES
              
              
              28,483,308
              
              
              -Total
                  liabilities
              
              
              382,973,640
              
              
              53,575,318MINORITY
                  INTEREST
              
              
              42,044,266
              
              
              6,185,797SHAREHOLDERS'
                  EQUITY:Preferred
                  stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899
                  and 0
                  sharesissued
                  and outstanding as of December 31, 2007 and December 31, 2006,
                  respectively
              
              
              3,093
              
              
              -Common
                  Stock, $0.001 par value, 200,000,000 shares authorized, 34,634,765
                  and32,426,665
                  shares (including 1,176,665 redeemable shares) issued and outstandingas
                  of December 31, 2007 and December 31, 2006,
                  respectively
              
              
              34,635
              
              
              31,250Paid-in-capital
              
              
              23,429,153
              
              
              6,871,358Retained
                  earnings
              
              
              22,686,590
              
              
              4,974,187Statutory
                  reserves
              
              
              3,632,325
              
              
              1,107,010Contribution
                  receivable
              
              
              (959,700
              )
              
              -Accumulated
                  other comprehensive income
              
              
              4,563,078
              
              
              1,076,688Total
                  shareholders' equity
              
              
              53,389,174
              
              
              14,060,493Total
                  liabilities and shareholders' equity
              
              $
              478,407,080
              
              $
              73,821,608


See
        report of independent registered public accounting firm.
  The
        accompanying notes are an integral part of these statements.


F-2




GENERAL
        STEEL HOLDINGS INC. AND SUBSIDIARIES
 CONSOLIDATED
        STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR
        THE
        YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005


2007
            
            2006
            
            2005RestatedREVENUES
            
            $
            416,900,597
            
            $
            139,494,624
            
            $
            89,739,899REVENUES
                - RELATED PARTIES
            
            
            355,538,568
            
            
            -
            
            
            -TOTAL
                REVENUES
            
            
            772,439,165
            
            
            139,494,624
            
            
            89,739,899COST
                OF SALES
            
            
            389,614,876
            
            
            135,324,190
            
            
            81,165,850COST
                OF SALES - RELATED PARTIES
            
            
            326,135,528
            
            
            -
            
            
            -TOTAL
                COST OF SALES
            
            
            715,750,404
            
            
            135,324,190
            
            
            81,165,850GROSS
                PROFIT
            
            
            56,688,761
            
            
            4,170,434
            
            
            8,574,049SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            16,163,956
            
            
            2,421,285
            
            
            2,781,070INCOME
                FROM OPERATIONS
            
            
            40,524,805
            
            
            1,749,149
            
            
            5,792,979OTHER
                INCOME (EXPENSE), NET
            
            
            (1,261,817
            )
            
            82,830
            
            
            (1,680,842
            )INCOME
                BEFORE PROVISION FOR INCOME TAXES
            
            
            39,262,988
            
            
            1,831,979
            
            
            4,112,137AND
                MINORITY INTERESTPROVISION
                (BENEFIT) FOR INCOME TAXESCurrent
            
            
            5,224,722
            
            
            -
            
            
            -Deferred
            
            
            (388,525
            )
            
            -
            
            
            -Total
                provision for income taxes
            
            
            4,836,197
            
            
            -
            
            
            -INCOME
                BEFORE MINORITY INTEREST
            
            
            34,426,791
            
            
            1,831,979
            
            
            4,112,137LESS
                MINORITY INTEREST
            
            
            12,000,870
            
            
            798,771
            
            
            1,371,918NET
                INCOME
            
            
            22,425,921
            
            
            1,033,208
            
            
            2,740,219FOREIGN
                CURRENCY TRANSLATION GAIN
            
            
            3,486,390
            
            
            677,500
            
            
            399,188COMPREHENSIVE
                INCOME
            
            $
            25,912,311
            
            $
            1,710,708
            
            $
            3,139,407WEIGHTED
                AVERAGE NUMBER OF SHARESBasic
            
            
            32,424,652
            
            
            31,250,000
            
            
            31,250,000Diluted
            
            
            32,558,350
            
            
            31,250,000
            
            
            31,250,000EARNINGS
                PER SHAREBasic
            
            $
            0.69
            
            $
            0.03
            
            $
            0.09Diluted
            
            $
            0.69
            
            $
            0.03
            
            $
            0.09


See
        report of independent registered public accounting firm.
  The
        accompanying notes are an integral part of these statements.


F-3




GENERAL
        STEEL HOLDINGS INC. AND SUBSIDIARIES
 CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR
        THE
        YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
  Preferred
                    stock
                
                Common
                    StockNumber
                
                Par
                
                Number
                
                Par
                
                Paid-inof
                    shares
                
                Value
                
                of
                    shares
                
                Value
                
                capitalBALANCE,
                    January 1, 2005 (restated)
                
                
                -
                
                $
                -
                
                
                31,250,000
                
                $
                31,250
                
                $
                6,871,358Net
                    incomeAdjustment
                    to statutory reserveForeign
                    currency translation gainBALANCE,
                    December 31, 2005 (restated)
                
                
                -
                
                $
                -
                
                
                31,250,000
                
                $
                31,250
                
                $
                6,871,358Net
                    incomeAdjustment
                    to statutory reserveForeign
                    currency translation gainBALANCE,
                    December 31, 2006
                
                
                -
                
                $
                -
                
                
                31,250,000
                
                $
                31,250
                
                $
                6,871,358Net
                    incomeAdjustment
                    to statutory reserveRegistered
                    Capital to be received fromBaotou
                    Steel by 05/21/09Common
                    stock issued for service, $1.32
                
                
                
                
                
                
                
                
                18,000
                
                
                18
                
                
                23,742Preferred
                      stock issued for acquisition net of dividend distribution to
                      Tianjin
                      Victory New
                
                
                3,092,899
                
                
                3,093
                
                
                
                
                
                
                
                
                8,370,907Conversion
                    of redeemable stock, $1.95
                
                
                
                
                
                
                
                
                1,176,665
                
                
                1,177
                
                
                2,293,320Conversion
                    of warrants, $2.50
                
                
                
                
                
                
                
                
                2,120,000
                
                
                2,120
                
                
                5,297,880Common
                    stock issued for compensation, $8.16
                
                
                
                
                
                
                
                
                70,100
                
                
                70
                
                
                571,946Foreign
                    currency translation gainBALANCE,
                    December 31, 2007
                
                
                3,092,899
                
                $
                3,093
                
                
                34,634,765
                
                $
                34,635
                
                $
                23,429,153


Retained
                    Earnings
                
                
                
                Accumulated
                    otherStatutory
                
                
                
                Subscriptions
                
                comprehensivereserves
                
                Unrestricted
                
                receivable
                
                income
                
                TotalsBALANCE,
                    January 1, 2005 (restated)
                
                $
                154,794
                
                $
                2,152,976
                
                $
                -
                
                $
                -
                
                $
                9,210,378Net
                    income
                
                
                
                
                
                2,740,219
                
                
                
                
                
                
                
                
                2,740,219Adjustment
                    to statutory reserve
                
                
                685,959
                
                
                (685,959
                )
                
                
                
                
                
                
                
                -Foreign
                    currency translation gain
                
                
                
                
                
                
                
                
                
                
                
                399,188
                
                
                399,188BALANCE,
                    December 31, 2005 (restated)
                
                $
                840,753
                
                $
                4,207,236
                
                $
                -
                
                $
                399,188
                
                $
                12,349,785Net
                    income
                
                
                
                
                
                1,033,208
                
                
                
                
                
                
                
                
                1,033,208Adjustment
                    to statutory reserve
                
                
                266,257
                
                
                (266,257
                )
                
                
                
                
                
                
                
                -Foreign
                    currency translation gain
                
                
                
                
                
                
                
                
                
                
                
                677,500
                
                
                677,500BALANCE,
                    December 31, 2006
                
                $
                1,107,010
                
                $
                4,974,187
                
                $
                -
                
                $
                1,076,688
                
                $
                14,060,493Net
                    income
                
                
                
                
                
                22,425,921
                
                
                
                
                
                
                
                
                22,425,921Adjustment
                    to statutory reserve
                
                
                2,525,315
                
                
                (2,525,315
                )
                
                
                
                
                
                
                
                -Registered
                    Capital to be received from Baotou Steel by 05/21/09
                
                
                
                
                
                
                
                
                (959,700
                )
                
                
                
                
                (959,700
                )Common
                    stock issued for service, $1.32
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                23,760Preferred
                      stock issued for acquisition net of dividend distribution to
                      Tianjin
                      Victory New
                
                
                
                
                
                (2,188,203
                )
                
                
                
                
                
                
                
                6,185,797Conversion
                    of redeemable stock, $1.95
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,294,497Conversion
                    of warrants, $2.50
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,300,000Common
                    stock issued for compensation, $8.16
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                572,016Foreign
                    currency translation gain
                
                
                
                
                
                
                
                
                
                
                
                3,486,390
                
                
                3,486,390BALANCE,
                    December 31, 2007
                
                $
                3,632,325
                
                $
                22,686,590
                
                $
                (959,700
                )
                $
                4,563,078
                
                $
                53,389,174


See
        report of independent registered public accounting firm.
  The
        accompanying notes are an integral part of these statements.


F-4




GENERAL
        STEEL HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED
          STATEMENTS OF CASH FLOWS FOR
            THE
            YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
  2007
              
              2006
              
              2005(Restated)CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              22,425,921
              
              $
              1,033,208
              
              $
              2,740,219Adjustments
                  to reconcile net income to cashprovided
                  by (used in) operating activities:Minority
                  Interest
              
              
              12,000,870
              
              
              798,771
              
              
              1,371,918Depreciation
              
              
              9,740,317
              
              
              1,619,267
              
              
              1,053,976Amortization
              
              
              596,538
              
              
              297,933
              
              
              289,938Loss
                  on disposal of equipment
              
              
              10,404
              
              
              28,137
              
              
              25,992Deferred
                  tax assets
              
              
              (383,918
              )
              
              -
              
              
              -Stock
                  issued for services and compensation
              
              
              595,776
              
              
              -
              
              
              -Interest
                  expense accrued on mandatory redeemable stock
              
              
              114,135
              
              
              458,904
              
              
              114,724Amortization
                  of deferred note issuance cost
              
              
              29,954
              
              
              -
              
              
              -Amortization
                  of discount on convertible notes
              
              
              159,478
              
              
              -
              
              
              -Change
                  in fair value of derivative instrument
              
              
              (6,235,754
              )
              
              -
              
              
              -Allowance
                  for bad debt
              
              
              1,510
              
              
              132,895
              
              
              -(Increase)
                  decrease in assets:Accounts
                  receivable
              
              
              16,247,520
              
              
              (15,871,902
              )
              
              (451,095
              )Accounts
                  receivable - related parties
              
              
              (543,228
              )
              
              -
              
              
              -Notes
                  receivable
              
              
              (9,491,608
              )
              
              (521,888
              )
              
              373,785Other
                  receivables
              
              
              (453,072
              )
              
              (152,111
              )
              
              108,860Other
                  receivables - related parties
              
              
              (990,037
              )
              
              (850,400
              )
              
              -Loan
                  receivable
              
              
              (1,185,030
              )
              
              -
              
              
              -Inventories
              
              
              (8,853,823
              )
              
              (1,366,266
              )
              
              2,378,597Advances
                  on inventory purchases
              
              
              (45,012,751
              )
              
              8,581,191
              
              
              3,042,837Advances
                  on inventory purchases - related parties
              
              
              (9,550,168
              )
              
              -
              
              
              -Prepaid
                  expense - current
              
              
              (949,243
              )
              
              -
              
              
              (63,709
              )Prepaid
                  expense - non current
              
              
              252,872
              
              
              44,559
              
              
              (659,742
              )Prepaid
                  expense - current - related parties
              
              
              (47,401
              )
              
              -
              
              
              -Prepaid
                  expense - non current - related parties
              
              
              (136,825
              )
              
              -
              
              
              -Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              88,355,643
              
              
              2,106,005
              
              
              523,624Accounts
                  payable - related parties
              
              
              13,736,262
              
              
              -
              
              
              -Other
                  payables
              
              
              823,345
              
              
              135,275
              
              
              (364,090
              )Other
                  payable - related party
              
              
              (76,863,715
              )
              
              (980,000
              )
              
              (10,000
              )Accrued
                  liabilities
              
              
              2,440,134
              
              
              259,000
              
              
              506,214Customer
                  deposits
              
              
              2,559,598
              
              
              (221,532
              )
              
              (771,235
              )Customer
                  deposits - related parties
              
              
              8,846,895
              
              
              -
              
              
              -Taxes
                  payable
              
              
              20,799,845
              
              
              3,577,364
              
              
              (240,347
              )Net
                  cash (used in) provided by operating activities
              
              
              39,040,444
              
              
              (891,590
              )
              
              9,970,466CASH
                  FLOWS FROM INVESTING ACTIVITIES:Cash
                  acquired from subsidiary
              
              
              508,906
              
              
              -
              
              
              -Restricted
                  cash
              
              
              236,655
              
              
              (1,374,495
              )
              
              861,897Notes
                  receivable - related party
              
              
              -
              
              
              3,013,680
              
              
              (2,932,800
              )Proceeds
                  from short term investment
              
              
              -
              
              
              37,671
              
              
              -Acquire
                  long term investment
              
              
              (790,020
              )
              
              -
              
              
              -Deposits
                  due to sales representatives
              
              
              840,055
              
              
              732,073
              
              
              (1,222
              )Advance
                  on equipment purchases
              
              
              (712,671
              )
              
              1,066,504
              
              
              (1,037,881
              )Prepayments
                  for land use rights
              
              
              -
              
              
              (72,031
              )
              
              -Equipment
                  purchases
              
              
              (21,523,962
              )
              
              (2,401,860
              )
              
              (627,941
              )Construction
                  in progress
              
              
              -
              
              
              (6,865,560
              )
              
              (4,169,895
              )Cash
                  proceeds from sale of equipment
              
              
              63,422
              
              
              -
              
              
              8,552Increase
                  in investment payable
              
              
              6,320,160Net
                  cash used in investing activities
              
              
              (15,057,455
              )
              
              (5,864,018
              )
              
              (7,899,290
              )CASH
                  FLOWS FINANCING ACTIVITIES:Borrowings
                  on short term loans - bank
              
              
              56,812,972
              
              
              29,663,401
              
              
              31,967,520Payments
                  on short term loans - bank
              
              
              (53,111,728
              )
              
              (27,462,159
              )
              
              (31,246,540
              )Payments
                  on short term loans - related parties
              
              
              (17,117
              )
              
              -
              
              
              -Borrowings
                  on short term loans - others
              
              
              5,230,372
              
              
              -
              
              
              -Payments
                  on short term loans - others
              
              
              (12,640,320
              )
              
              -
              
              
              -Borrowings
                  on short term notes payable
              
              
              14,562,702
              
              
              7,986,252
              
              
              11,266,840Payments
                  on short term notes payable
              
              
              (38,210,634
              )
              
              (5,474,852
              )
              
              (12,782,120
              )Cash
                  received from issuance of convertible note
              
              
              36,855,500
              
              
              -
              
              
              -Contribution
                  received from minority shareholders
              
              
              790,020
              
              
              -
              
              
              -Payment
                  to original shareholders
              
              
              (2,813,644
              )
              
              -
              
              
              -Cash
                  received from warrants converted to common stock
              
              
              5,300,000
              
              
              -
              
              
              -Cash
                  received on issuance of mandatory redeemable stock
              
              
              -
              
              
              -
              
              
              1,606,151Net
                  cash provided by financing activities
              
              
              12,758,123
              
              
              4,712,642
              
              
              811,851EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              140,685
              
              
              226,142
              
              
              217,536INCREASE
                  (DECREASE) IN CASH
              
              
              36,881,797
              
              
              (1,816,824
              )
              
              3,100,563CASH,
                  beginning of year
              
              
              6,831,549
              
              
              8,648,373
              
              
              5,547,810CASH,
                  end of year
              
              $
              43,713,346
              
              $
              6,831,549
              
              $
              8,648,373


See report of independent registered public accounting firm.The accompanying notes are an integral part of these statements.


F-5


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007


**Note
        1 - Background**
 
 General
        Steel Holdings, Inc. was incorporated on August 5, 2002 in the state of Nevada
        under the name of American Construction Company (“ACC”). On October 14, 2004,
        ACC, Northwest Steel Company, a wholly-owned Nevada subsidiary of ACC, and
        General Steel Investment Co., Ltd., a British Virgin I slands
        company (“General Steel Investment”), entered into an Agreement and Plan of
        Merger pursuant to which ACC acquired General Steel Investment, and its 70%
        ownership in its subsidiary Tianjin Daqiuzhuang Metal Sheet Co., Ltd., a
        PRC
        limited liability company (“Daqiuzhuang Metal”) in exchange for shares of ACC’s
        common stock. Effective March 7, 2005, ACC changed its name to “General Steel
        Holdings, Inc.” (the “Company” or “General Steel”).
 
 The
        Company through its 100% owned subsidiary, General Steel Investment operates
        a
        portfolio of Chinese steel companies serving various industries. The Company
        presently has three production subsidiaries: Daqiuzhuang Metal, Baotou Steel
        -
        General Steel Special Steel Pipe Joint Venture Co., Ltd., (“Baotou Steel Pipe
        Joint Venture”) and Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint
        Venture”). The Company’s main products include rebar, hot-rolled carbon and
        silicon sheets and spiral-weld pipes.
 
 The
        following table reflects the Company’s current organization structure:
  
 
 On
        April
        27, 2007, Daqiuzhuang Metal and Baotou Iron and Steel Group Co., Ltd. ("Baotou
        Steel") entered into an Amended and Restated Joint Venture Agreement (the
        "Agreement"), amending the September 28, 2005 Joint Venture Agreement ("Original
        Joint Venture Agreement") which established Baotou Steel Pipe Joint Venture,
        a
        PRC limited liability company. The Agreement increased Daqiuzhuang Metal's
        ownership interest in the Joint Venture to 80%. Baotou Steel Pipe Joint Venture
        obtained its business license from the PRC on May 25, 2007 and started its
        normal operation in July 2007. See more discussion in Note 19 - Business
        combinations.
  F-6
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 Baotou
        Steel Pipe Joint Venture is located in Kundulun District, Baotou city, Inner
        Mongolia, China. It produces and sells spiral welded steel pipes and primarily
        serves customers in the oil, gas and petrochemical markets.
 
 On
        May
        18, 2007, General Steel entered into a Purchase Agreement with Victory New
        Holdings Limited (“Victory New”), a British Virgin Islands registered company
        under the control of the Company’s Chairman, CEO and majority shareholder,
        Zuosheng Yu (aka Henry Yu), to acquire Victory New’s 30% interest in Tianjin
        Daqiuzhuang Metal Sheet Co. Ltd. (“Daqiuzhuang Metal”) General Steel agreed to
        issue to Victory New an aggregate of 3,092,899 shares of Series A Preferred
        Stock with a fair value of $8,374,000, and voting power of 30% of the combined
        voting power of General Steel’s common and preferred stock while outstanding. As
        a result of the acquisition, Daqiuzhuang Metal is a wholly owned subsidiary
        of
        the Company. See details in Note 19 - Business combinations.
 
 On
        May
        18, 2007, Daqiuzhuang Metal established Yangpu Shengtong Investment Co.,
        Ltd.
        (“Yangpu Investment”) and injected registered capital totaling RMB100,000,000,
        or approximately $13,030,000, into the investment. The total registered capital
        of Yangpu Investment is RMB110,000,000, or approximately $14,333,000, and
        Daqiuzhuang Metal has a 99.1% ownership interest in Yangpu Investment. The
        rest
        of Yangpu Investment is indirectly owned by Zuosheng Yu, our Chairman and
        CEO.
 
 Qiu
        Steel
        Investment Co., Ltd. (“Qiu Steel Investment”) was founded on June 1, 2006. In
        June 2007, Yangpu Investment agreed to invest RMB148,000,000, or approximately
        $19,284,400, through a capital injection and equity transfer with former
        shareholders. The total registered capital of Qiu Steel Investment is
        RMB150,000,000, or approximately $19,545,000. As a result of the above mentioned
        equity transaction, Yangpu Investment acquired 98.7% equity of Qiu Steel
        Investment making Qiu Steel Investment a subsidiary of Yangpu Investment
        and
        Daqiuzhuang Metal. The rest of Qiu Steel Investment is indirectly owned by
        Zuosheng Yu, our Chairman and CEO.
 
 Yangpu
        Investment and Qiu Steel Investment are Chinese registered limited liability
        companies formed to acquire other businesses.
 
 On
        June
        15, 2007, General Steel and Shaanxi Longmen Iron and Steel (Group) Co., Ltd.,
        a
        PRC limited liability company (“Longmen Group”), signed an agreement to form
        Longmen Joint Venture. The parties agreed to make the effective date of the
        transaction June 1, 2007. General Steel contributed RMB300 million or
        approximately $39,450,000 through its subsidiaries, Daqiuzhuang Metal and
        Qiu
        Steel Investment, to the Longmen Joint Venture. General Steel and Longmen
        Group
        own a 60% and 40% ownership interest, respectively, in Longmen Joint Venture.
        The Longmen Joint Venture obtained its business license from the PRC on June
        22,
        2007. See more discussion in Note 19 - Business combinations.
 
 Longmen
        Joint Venture is located in Hancheng city, Shaanxi province, China. Longmen
        Joint Venture is the largest integrated steel producer in Shaanxi province,
        that
        uses iron ore and coke as primary raw materials for steel production. Longmen
        Joint Venture produces pig iron, crude steel, reinforced bars and high-speed
        wire. Longmen Joint Venture is also engaged in several other business
        activities, most of which are related to steel manufacturing. These include
        the
        production of coke and the production of iron ore pellets from taconite,
        transportation services and real estate and hotel operations. These operations
        are all located in Hancheng city and primarily serve regional customers in
        the
        construction industry.
  F-7
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 On
        September 24, 2007, Longmen Joint Venture further acquired 74.92% ownership
        interest in Environmental Protection Industry Development Co., Ltd., a PRC
        limited liability company (“EPID”) engaging in recycling steel production waste,
        for RMB18,080,930, approximately $2,380,000, and a 36% equity interest in
        Hualong Fire Retardant Materials Co., Ltd., a PRC limited liability company
        (“Hualong”) engaging in producing fire retardant material for steel production,
        for RMB3,287,980, approximately $430,000. The parties agreed to make the
        effective date of the transaction July 1, 2007.
 
 **Note
        2 - Summary of significant accounting policies**
 
 Basis
        of presentation
 
 The
        consolidated financial statements of the Company reflect the activities of
        the
        following directly and indirectly owned subsidiaries:
 
 PercentageSubsidiary
              
              Of
                  OwnershipGeneral
                  Steel Investment Co., Ltd.
              
              
              British
                  Virgin Islands
              
              
              100.0
              %Tianjin
                  Daqiuzhuang Metal Sheet Co., Ltd
              
              
              P.R.C.
              
              
              100.0
              %Baotou
                  Steel - General Steel Special Steel Pipe Joint Venture Co.,
                  Ltd.
              
              
              P.R.C.
              
              
              80.0
              %Yangpu
                  Shengtong Investment Co., Ltd.
              
              
              P.R.C.
              
              
              99.1
              %Qiu
                  Steel Investment Co., Ltd.
              
              
              P.R.C.
              
              
              98.7
              %Shaanxi
                  Longmen Iron and Steel Co. Ltd.
              
              
              P.R.C.
              
              
              60.0
              %
 
 The
        accompanying financial statements have been prepared in accordance with
        accounting principles generally accepted in the United States of America.
        The
        accompanying consolidated financial statements include the accounts of all
        direct and indirectly owned subsidiaries listed above. All material intercompany
        transactions and balances have been eliminated in the consolidation. The
        Longmen
        Joint Venture financial data from June 1, 2007, the effective date of the
        acquisition, to December 31, 2007 is included in the accompanying consolidated
        financial statements. The financial data of EPID and Hualong are included
        in the
        accompanying consolidated financial statements from July 1 to December 31,
        2007.
 
 Use
        of
        estimates
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles of the United States of America requires management
        to
        make estimates and assumptions that affect the amounts reported in the financial
        statements and accompanying notes. Significant accounting estimates reflected
        in
        the Company’s financial statements include the useful lives of and impairment
        for property, plant and equipment, potential losses on uncollectible receivables
        and the fair value of the conversion feature and warrants associated with
        the
        note payable. Actual results could differ from these estimates.
 
 F-8
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
  Concentration
        of risks
 
 The
        Company's operations are carried out in the PRC. Accordingly, the Company's
        business, financial condition and results of operations may be influenced
        by the
        political, economic and legal environment in the PRC, and by the general
        state
        of the PRC's economy. The Company's operations in the PRC are subject to
        specific considerations and significant risks not typically associated with
        companies in North America and Western Europe. The Company's results may
        be
        adversely affected by changes in governmental policies with respect to laws
        and
        regulations, anti-inflationary measures, currency conversion and remittance
        abroad, and rates and methods of taxation, among other things.
 
 Cash
        includes cash on hand and demand deposits in accounts maintained with state
        owned banks within the People’s Republic of China and Hong Kong. Total cash
        (including restricted cash balances) in these banks on December 31, 2007
        and
        2006 amounted to $53,817,485 and $11,058,636, respectively, of which no deposits
        are covered by insurance. The Company has not experienced any losses in such
        accounts and believes it is not exposed to any risks on its cash in bank
        accounts.
 
 The
        Company had five major customers, all distributors, which represented
        approximately 59%, 30% and 37% of the Company’s total sales for the years ended
        December 31, 2007, 2006 and 2005, respectively. Five customers accounted
        for 0%,
        62% and 51% of total accounts receivable as of December 31, 2007, 2006 and
        2005,
        respectively.
 
 For
        the
        years ended December 31, 2007, 2006 and 2005, the Company purchased
        approximately 40%, 82% and 85%, respectively, of their raw materials from
        four
        major suppliers. Five vendors accounted for 11%, 0%, and 0% of total accounts
        payable as of December 31, 2007, 2006 and 2005, respectively.
 
 Revenue
        recognition
 
 The
        Company's revenue recognition policies are in compliance with Staff Accounting
        Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
        customers when a formal arrangement exists, the price is fixed or determinable,
        the delivery is completed, no other significant obligations of the Company
        exist
        and collectability is reasonably assured. Payments received before all of
        the
        relevant criteria for revenue recognition are recorded as customer deposits.
        Sales revenue represents the invoiced value of goods, net of value-added
        tax
        (VAT). All of the Company’s products sold in the PRC are subject to a Chinese
        value-added tax at a rate of 13% to 17% of the gross sales price. This VAT
        may
        be offset by VAT paid by the Company on raw materials and other materials
        included in the cost of producing the finished product.
 
 Foreign
        currency translation and other comprehensive income
 
 The
        reporting currency of the Company is the US dollar. The Company uses the
        local
        currency, Renminbi (RMB), as its functional currency. Assets and liabilities
        are
        translated at the unified exchange rate as quoted by the People’s Bank of China
        at the end of the period. Translation adjustments resulting from this process
        are included in accumulated other comprehensive income in the statement of
        shareholders’ equity. Transaction gains and losses that arise from exchange rate
        fluctuations on transactions denominated in a currency other than the functional
        currency are included in the results of operations as incurred.
  F-9
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 
 Translation
        adjustments resulting from this process are included in accumulated other
        comprehensive income in the consolidated statement of shareholders' equity
        and
        amounted to $4,563,078, $1,076,688 and $399,188 as of December 31, 2007,
        2006
        and 2005, respectively. The balance sheet amounts, with the exception of
        equity
        at December 31, 2007 and 2006, were translated at 7.30 RMB and 7.8 RMB to
        $1.00
        USD, respectively. The equity accounts were stated at their historical rate.
        The
        average translation rates applied to income statement accounts for the years
        ended December 31, 2007, 2006 and 2005 were 7.59 RMB, 7.96 RMB and 8.18RMB,
        respectively. Cash flows are also translated at average translation rates
        for
        the period, therefore, amounts reported on the statement of cash flows will
        not
        necessarily agree with changes in the corresponding balances on the balance
        sheet.
 
 Financial
        instruments
 
 Statement
        of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
        Value of Financial Instruments” requires disclosure of the fair value of
        financial instruments held by the Company. SFAS 107 defines the fair value
        of
        financial instruments as the amount at which the instrument could be exchanged
        in a current transaction between willing parties.
 
 The
        Company considers the carrying amount of cash, accounts receivable, other
        receivables, accounts payable, accrued liabilities, and long term debts to
        approximate their fair values because of the short period of time between
        the
        origination of such instruments and their expected realization and their
        current
        market rate of interest.
 
 The
        Company also analyzes all financial instruments with features of both
        liabilities and equity under SFAS 150, “Accounting for Certain Financial
        Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
        Settled in, a Company’s Own Stock.” The convertible preferred shares issued in
        2005 and the convertible note issued in 2007 did not require bifurcation
        or
        result in liability accounting. Additionally, the Company analyzes registration
        rights agreements associated with any equity instruments issued to determine
        if
        penalties triggered for late filing should be accrued under FSP EITF 00-19-2,
        “Accounting for Registration Payment Arrangements.”
 
 Derivative
        instrument
 
 In
        December 2007, the Company issued convertible notes totaling $40,000,000
        (“Notes”) and 1,154,958 warrants. Both the warrants and the conversion option
        embedded in the Notes meet the definition of a derivative instrument in SFAS
        133, “Accounting for Derivative Instruments and Hedging Activities.” Therefore
        these instruments are accounted for as derivative liabilities and
        marked-to-market each reporting period. The change in the value of the
        derivative liabilities is charged against or credited to income.
 
 Cash
        and cash equivalents
 
 Cash
        and
        cash equivalents include cash on hand and demand deposits in banks with
        maturities of less than three months.
 
 F-10
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 
 Restricted
        cash
 
 The
        Company has notes payable outstanding with various banks and is required
        to keep
        certain amounts on deposit that are subject to withdrawal
        restrictions.
 
 Accounts
        receivable and allowance for doubtful accounts
 
 The
        Company conducts its business operations in the People’s Republic of China.
        Accounts receivable include trade accounts due from the customers. An allowance
        for doubtful account is established and recorded based on managements’
assessment of the credit history and relationship with the customers. Management
        reviews its accounts receivable on a regular basis to determine if the bad
        debt
        allowance is adequate and adjusts the allowance when necessary.
 
 Notes
        receivable
 
 Notes
        receivable represents trade accounts receivable due from various customers
        where
        the customers’ banks have guaranteed the payment of the receivables. This amount
        is non-interest bearing and is normally paid within three to six months.
        The
        Company has the ability to submit request for payment to the customer’s bank
        earlier than the scheduled payment date, but will incur an interest charge
        and a
        processing fee when it submits the early payment request. The Company had
        $4,216,678 and $537,946 outstanding as of December 31, 2007 and 2006,
        respectively.
 
 Restricted
        notes receivable represents notes pledged as collaterals of short term loans
        from banks. AS of December 31, 2007 and 2006, restricted notes receivable
        amounted to $12,514,659 and $0, respectively.
 
 Inventories
 
 Inventories
        are stated at the lower of cost or market using weighted average
        method.
 
 Intangible
        assets
 
 All
        land
        in the People’s Republic of China is owned by the government and cannot be sold
        to any individual or company. However, the government grants the user a “land
        use right” to use the land.
 
 Daqiuzhuang
        Metal acquired land use rights during the years ended 2000 and 2003 for a
        total
        amount of $3,167,483. These land use rights are for 50 years and expire in
        2050
        and 2053. However, Daqiuzhuang Metal's initial business license had a ten-year
        term. Therefore, management elected to amortize the land use rights over
        the
        ten-year business term. Daqiuzhuang Metal became a Sino-Foreign Joint Venture
        in
        2004, and obtained a new business license for twenty years; however, the
        Company
        decided to continue amortizing the land use rights over the original ten-year
        business term.
 
 Longmen
        Group contributed land use rights for a total amount of $19,823,885 to the
        Longmen Joint Venture. The land use rights are for 50 years and expire in
        2048
        to 2052.
 
 Intangible
        assets of the Company are reviewed annually to determine whether their carrying
        value has become impaired. The Company considers assets to be impaired if
        the
        carrying value exceeds the future projected cash flows from related operations.
        The Company also re-evaluates the periods of amortization to determine whether
        subsequent events and circumstances warrant revised estimates of useful lives.
        As of December 31, 2007, the Company expects these assets to be fully
        recoverable.
  F-11
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 Plant
        and equipment, net
 
 Plant
        and
        equipment are stated at cost less accumulated depreciation. Depreciation
        is
        computed using the straight-line method over the estimated useful lives of
        the
        assets with 3%-5% residual value.
 
 Construction
        in progress represents the costs incurred in connection with the construction
        of
        buildings or new additions to the Company’s plant facilities. No depreciation is
        provided for construction in progress until such time as the assets are
        completed and are placed into service. Maintenance, repairs and minor renewals
        are charged directly to expense as incurred. Major additions and betterment
        to
        buildings and equipment are capitalized. Interest incurred during construction
        is capitalized into construction in progress. All other interest is expensed
        as
        incurred.
 
 Long-term
        investments
 
 Investee
        companies over which the Company has the ability to exercise significant
        influence, but does not have a controlling interest is accounted for using
        the
        equity method. Significant influence is generally considered to exist when
        the
        Company has an ownership interest in the voting stock of the investee of
        between
        20% and 50%, and other factors, such as representation on the investee's
        Board
        of Directors, voting rights and the impact of commercial arrangements, are
        considered in determining whether the equity method of accounting is
        appropriate. In December 2007, the Company acquired 27% of ownership interest
        in
        Xian Delong Powder Engineering Materials Co., Ltd., through its 74.92% owned
        subsidiary, Environmental Protection Industry Development Co., Ltd., with
        a
        consideration of $822,600. This investment is accounted for by the equity
        method.
 
 Short-term
        notes payable
 
 Short-term
        notes payable are lines of credit extended by banks. When purchasing raw
        materials, the Company often issues a short-term note payable to the vendor.
        This short-term note payable is guaranteed by the bank for its complete face
        value. The banks usually require the Company to deposit a certain amount
        of cash
        at the bank as a guarantee deposit which is classified on the balance sheet
        as
        restricted cash. The total outstanding amounts of short-term notes payable
        were
        $15,163,260 and $8,153,520 as of December 31, 2007 and December 31, 2006,
        respectively.
 
 Shares
        subject to mandatory redemption
 
 The
        Company adopted Statement of Financial Accounting Standards No. 150, “Accounting
        for Certain Financial Instruments with Characteristics of both Liabilities
        and
        Equity”. FAS 150 established classification and measurement standards for three
        types of freestanding financial instruments that have characteristics of
        both
        liabilities and equity. Instruments within the scope of FAS 150 must be
        classified as liabilities within the Company’s Consolidated Financial Statements
        and be reported at settlement date value. The Company issued redeemable stock
        in
        September 2005. The
        amount was presented as a liability on the balance sheet at the fair market
        value on the date of issuance plus accrued interest at the balance sheet
        date.
        As of December 31, 2007, redemption fe ature
        on
        all the shares issued was expired and subsequently the shares were reclassified
        from liability to equity. See note 13 for details.
  F-12
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 Earnings
        per share
 
 The
        Company reports earnings per share in accordance with the provisions of SFAS
        No.
        128, "Earnings Per Share." SFAS No. 128 requires presentation of basic and
        diluted earnings per share in conjunction with the disclosure of the methodology
        used in computing such earnings per share.
 
 Basic
        earnings per share is computed by dividing income available to common
        stockholders by the weighted average common shares outstanding during the
        period. Diluted earnings per share takes into account the potential dilution
        that could occur if securities or other contracts to issue common stock were
        exercised and converted into common stock.
 
 Income
        taxes
 
 Deferred
        income taxes are recognized for temporary differences between the tax bases
        of
        assets and liabilities and their reported amounts in the financial statements,
        net operating loss carry forwards and credits, by applying enacted statutory
        tax
        rates applicable to future years. Deferred tax assets are reduced by a valuation
        allowance when, in the opinion of management, it is more likely than not
        that
        some portion or all of the deferred tax assets will not be realized. Current
        income taxes are provided for in accordance with the laws of the relevant
        taxing
        authorities.
 
 The
        Company adopted Statement of Financial Accounting Standards No. 109, “Accounting
        for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred
        income tax liabilities and assets for the expected future tax consequences
        of
        temporary differences between income tax basis and financial reporting basis
        of
        assets and liabilities. Provision for income taxes consists of taxes currently
        due plus deferred taxes. The Company adopted FASB Interpretation 48, “Accounting
        for Uncertainty in Income Taxes” (“FIN 48”), as of January 1, 2007. A tax
        position is recognized as a benefit only if it is “more likely than not” that
        the tax position would be sustained in a tax examination, with a tax examination
        being presumed to occur. The amount recognized is the largest amount of tax
        benefit that is greater than 50% likely of being realized on examination.
        For
        tax positions not meeting the “more likely than not” test, no tax benefit is
        recorded. The adoption had no effect on the Company’s financial statements.
 
 The
        charge for taxation is based on the results for the year as adjusted for
        items,
        which are non-assessable or disallowed. It is calculated using tax rates
        that
        have been enacted or substantively enacted by the balance sheet
        date.
 
 Deferred
        tax is accounted for using the balance sheet liability method in respect
        of
        temporary differences arising from differences between the carrying amount
        of
        assets and liabilities in the financial statements and the corresponding
        tax
        basis used in the computation of assessable tax profit. In principle, deferred
        tax liabilities are recognized for all taxable temporary differences, and
        deferred tax assets are recognized to the extent that it is probable that
        taxable profit will be available against which deductible temporary differences
        can be utilized. Deferred tax is calculated using tax rates that are expected
        to
        apply to the period when the asset is realized or the liability is settled.
        Deferred tax is charged or credited in the income statement, except when
        it is
        related to items credited or charged directly to equity, in which case the
        deferred tax is also dealt with in equity. Deferred tax assets and liabilities
        are offset when they relate to income taxes levied by the same taxation
        authority and the Company intends to settle its current tax assets and
        liabilities on a net basis.
  F-13
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 Share-based
        compensation
 
 The
        Company records stock-based compensation pursuant to Statement of Financial
        Accounting Standards No. 123 (revised 2004), "Share-Based Payments,"
        ("FAS123R"), which established standards for the accounting for transactions
        in
        which an entity exchanges its equity instruments for goods or services. This
        statement requires companies to measure the cost of services received in
        exchange for an award of equity instruments based on the grant-date fair
        value
        of the award. The cost will be recognized over the period of services
        rendered.
 
 Shipping
        and handling
 
 Shipping
        and Handling for raw materials purchased are included in cost of goods sold.
        Shipping and handling cost incurred for shipping of finished products to
        customers are included in selling expenses. Shipping and handling expenses
        for
        purchases of material and sales of finished goods for the years ended December
        31, 2007, 2006, and 2005 amounted to $2,806,599, $165,666, and $77,075,
        respectively.
 
 Minority
        interest
 
 Minority
        interest consists of the interest of minority shareholders in the subsidiaries
        of the Company. As of December 31, 2007 and 2006, minority interest amounted
        to
        $42,044,266 and $6,185,797, respectively.
 
 Reclassifications
 
 Certain
        prior period amounts have been reclassified to conform to the current period
        presentation. These reclassifications have no effect on net income or cash
        flows.
 
 Recently
        issued accounting pronouncements
 
 In
        September 2006, the Financial Accounting Standards Board (FASB) issued Statement
        of Financial Accounting Standards (SFAS) No. 157, Fair Value
        Measurements” ** (“SFAS
        157”). SFAS 157 defines fair value, establishes a framework for measuring fair
        value under accounting principles generally accepted in the United States
        (GAAP)
        and expands disclosures about fair value measurements. Fair value is defined
        under SFAS 157 as the exchange price that would be received for an asset
        or paid
        to transfer a liability (an exit price) in the principal or most advantageous
        market for the asset or liability in an orderly transaction between market
        participants on the measurement date. SFAS 157 also establishes a fair value
        hierarchy which requires the Company to maximize the use of observable inputs
        and minimize the use of unobservable inputs when measuring fair value. The
        effective date of this pronouncement is for all full fiscal and interim periods
        beginning after November 15, 2008. The Company does not expect the adoption
        of
        SFAS 157 to have a material impact on the Company’s financial position or
        results of operations.
 
 In
        February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
        Assets and Financial Liabilities—including an amendment of FASB Statement No.
        115 (“FAS 159”). FAS 159 permits companies to choose to measure many financial
        instruments and certain other items at fair value that  are
        not
        currently required to be measured at fair value. The objective of FAS 159
        is to
        provide opportunities to mitigate volatility in reported earnings caused
        by  measuring
        related assets and liabilities differently without having to apply hedge
        accounting provisions. FAS 159 also establishes presentation and
        disclosure  requirements
        designed to facilitate comparisons between companies that choose different
        measurement attributes for similar types of assets and liabilities.
        SFAS  159
        will
        be effective in the first quarter of fiscal 2009. The Company is evaluating
        the
        impact that this statement will have on its consolidated financial  statements.
  F-14
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements - an amendment of Accounting Research Bulletin
        No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
        ownership interests in subsidiaries held by parties other than the parent,
        the
        amount of consolidated net income attributable to the parent and to the
        noncontrolling interest, changes in a parent’s ownership interest and the
        valuation of retained non-controlling equity investments when a subsidiary
        is
        deconsolidated. The Statement also establishes reporting requirements that
        provide sufficient disclosures that clearly identify and distinguish between
        the
        interests of the parent and the interests of the non-controlling owners.
        SFAS
        160 is effective for fiscal years beginning after December 15, 2008. The
        Company
        has not determined the effect that the application of SFAS 160 will have
        on its
        consolidated financial statements.
 
 In
        December 2007, Statement of Financial Accounting Standards No. 141(R), *Business
        Combinations* ,
        was
        issued. SFAS No. 141R replaces SFAS No. 141, *Business
        Combinations.* SFAS
        141R
        retains the fundamental requirements in SFAS 141 that the acquisition method
        of
        accounting (which SFAS 141 called the *purchase
        method* )
        be used
        for all business combinations and for an acquirer to be identified for each
        business combination. SFAS 141R requires an acquirer to recognize the assets
        acquired, the liabilities assumed, and any noncontrolling interest in the
        acquiree at the acquisition date, measured at their fair values as of that
        date,
        with limited exceptions. This replaces SFAS 141’s cost-allocation process, which
        required the cost of an acquisition to be allocated to the individual assets
        acquired and liabilities assumed based on their estimated fair values. SFAS
        141R
        also requires the acquirer in a business combination achieved in stages
        (sometimes referred to as a step acquisition) to recognize the identifiable
        assets and liabilities, as well as the noncontrolling interest in the acquiree,
        at the full amounts of their fair values (or other amounts determined in
        accordance with SFAS 141R). SFAS 141R applies prospectively to business
        combinations for which the acquisition date is on or after the beginning
        of the
        first annual reporting period beginning on or after December 15, 2008. An
        entity
        may not apply it before that date. The Company is currently evaluating the
        impact that adopting SFAS No. 141R will have on its financial
        statements.
 
 In
        March
        2008, the
        FASB
        issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
        Activities - an amendment of FASB Statement No. 133” (“SFAS 161”), which changes
        the disclosure requirements for derivative instruments and hedging activities.
        Entities are required to provide enhanced disclosures about (a) how and why
        an
        entity uses derivative instruments, (b) how derivative instruments and related
        hedged items are accounted for under Statement 133 and its related
        interpretations, and (c) how derivative instruments and related hedged items
        affect an entity’s financial position, financial performance and cash flows.
        SFAS 161 is effective for financial statements issued for fiscal years and
        interim periods beginning after November 15, 2008. The Company has not
        determined the effect that the application of SFAS 161 will have on its
        consolidated financial statements.
 
 F-15
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
  **Note
        3 - Accounts receivable and allowance for doubtful
        accounts**
 
 Accounts
        receivable, net of allowance for doubtful accounts consist of the
        following:
 
 December
                  31,
                2007
              
              December
                  31,
                2006Accounts
                  receivable
              
              $
              11,373,902
              
              $
              17,232,850Less:
                  allowance for doubtful accounts
              
              
              148,224
              
              
              137,132Net
                  accounts receivable
              
              $
              11,225,678
              
              $
              17,095,718
 
 Movement
        of allowance for doubtful accounts is as follows:
 
 December
                  31,
                2007
              
              December
                  31,
                2006Beginning
                  balance
              
              $
              137,132
              
              $
              1,371Charge
                  to expense
              
              
              751
              
              
              135,761Written-off
              
              
              -
              
              
              -Exchange
                  rate effect
              
              
              10,341
              
              
              -Ending
                  balance
              
              $
              148,224
              
              $
              137,132
 
 **Note
        4 - Inventory**
 
 Inventory
        consists of the following:
 
 December
                  31,
                2007
              
              December
                  31, 2006Supplies
              
              $
              1,829,551
              
              $
              1,061,773Raw
                  materials
              
              
              42,919,783
              
              
              2,827,127Work
                  in process
              
              
              82,439
              
              
              -Finished
                  goods
              
              
              33,097,152
              
              
              8,600,390Total
              
              $
              77,928,925
              
              $
              12,489,290
 
 Raw
        materials consist primarily of iron ore and coke at Long Men Joint Venture
        and
        steel strip at Daqiuzhuang Metal. Work
        in
        process primarily consists of pig iron and other semi-finished products.
        The
        cost of finished goods includes direct costs of raw materials as well as
        direct
        labor used in production. Indirect production costs such as utilities and
        indirect labor related to production such as assembling, shipping and handling
        costs are also included in the cost of inventory. The Company reviews its
        inventory periodically for possible obsolete goods and to determine if any
        reserves are necessary for potential obsolescence. As of December 31, 2007
        and
        2006, the Company believes no reserves are necessary.
 
 F-16
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 
 **Note
        5 - Advances on inventory purchases**
 
 Advances
        on inventory purchases are monies deposited or advanced to outside vendors
        or
        related parties on future inventory purchases. Due to the high shortage of
        steel
        in China, most of the Company’s vendors require a certain amount of money to be
        deposited with them as a guarantee that the Company will receive its purchases
        on a timely basis.
 
 This
        amount is refundable and bears no interest. The Company has legally binding
        contracts with its vendors, which required the deposit to be returned to
        the
        Company at the end of the contract. The inventory is normally delivered within
        one month after the monies have been advanced. The total outstanding amount,
        including advances to related parties, was $68,114,486 and $2,318,344 as
        of
        December 31, 2007 and December 31, 2006, respectively.
 
 **Note
        6 - Plant and equipment, net**
 
 Plant
        and
        equipment consist of the following at:
 
 December
                  31, 2007
              
              December
                  31, 2006Buildings
                  and improvements
              
              $
              71,265,004
              
              $
              9,338,865Machinery
              
              
              134,716,437
              
              
              22,675,357Transportation
                  equipment
              
              
              4,232,556
              
              
              1,019,698Other
                  equipment
              
              
              1,310,489
              
              
              -Construction
                  in process
              
              
              24,574,027
              
              
              -Totals
              
              
              236,098,513
              
              
              33,033,920Less
                  accumulated depreciation
              
              
              (17,835,146
              )
              
              (
                  6,427,326
              )Totals
              
              $
              218,263,367
              
              $
              26,606,594
 
 The
        depreciation expense for the years ended December 31, 2007, 2006 and 2005
        amounted to $9,740,317, $1,619,267 and $1,053,976, respectively.
 
 For
        the
        years ended December 31, 2007, 2006 and 2005, the Company capitalized interest
        of $1,037,793, $186,432 and $57,844, respectively.
 
 **Note
        7 - Intangible assets**
 
 The
        Company’s intangible assets are as follows:
 
 December
                  31, 2007
              
              December
                  31, 2006Land
                  use right
              
              $
              23,629,059
              
              $
              3,041,733Software
              
              
              71,978
              
              
              -Accumulated
                  Amortization
              
              
              (1,944,328
              )
              
              (1,237,293
              )Total
              
              $
              21,756,709
              
              $
              1,804,440
 
 Total
        amortization expense for the years ended December 31, 2007, 2006, and 2005,
        amounted to $596,538 and $297,933, and $289,938, respectively.
  F-17
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 **Note
        8 - Debt**
 
 Short
        term loans
 
 Short
        term loans represent amounts due to various banks, other companies and
        individuals, normally due within one year. The loans due to banks can be
        renewed
        with the banks. The Company had short term loans from related parties totaling
        $7,317,027 as of December 31, 2007. No short term loans from related parties
        were outstanding as of December 31, 2006.
 
 The
        loans
        due to banks consisted of the following:
 DAQIUZHUANG
                    METALDecember
                    31, 2007
                
                December
                    31, 2006Loan
                    from China Bank, JingHai Branch, dueSeptember
                    2008. Quarterly interest only payment at7.29%
                    per annum, secured by equipment
                
                $
                959,700
                
                $
                1,153,800Loans
                    from Agriculture Bank, DaQiuZhuang Branch, duevarious
                    dates from March to September 2008.Quarterly
                    interest only payments ranging from7.344%
                    to 8.424% per annum, guaranteed by anrelated
                    third party and secured by equipment
                
                
                10,293,468
                
                
                9,625,256Loan
                    from Construction Bank of China, JinHai Branch, dueAugust
                    2008. Monthly interest only payment at 8.55%per
                    annum, guaranteed by an unrelated third party andsecured
                    by equipment
                
                
                1,508,100
                
                
                1,557,630Loans
                    from ShangHai PuFa Bank, due various dates fromMarch
                    to July 2008. Quarterly interest only paymentsranging
                    from 6.435% to 6.732% per annum, guaranteedby
                    an unrelated third party
                
                
                4,113,000
                
                
                5,128,000Loan
                    from China Merchants Bank, dueNovember
                    2008. Quarterly interest only paymentsat
                    floating interest rate,105% of People's Bank base rateof
                    7.29% to 7.85%, guaranteed by an unrelated third party.
                
                
                8,226,000
                
                
                7,692,000Loan
                    from ShenZhen Development Bank, due variousdates
                    in March 2008. Monthly interest only paymentat
                    6.426% to 6.710% per annum, secured byinventory
                    and guaranteed by CEO of the Company.
                
                
                6,855,000
                
                
                5,128,000Totals
                    - Daqiuzhuang Metal
                
                $
                31,955,268
                
                $
                30,284,686
  F-18
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
  LONG
                      MEN JOINT VENTUREDecember
                      31, 2007
                  
                  December
                      31, 2006Loans
                      from Construction Bank, due variousdates
                      from Marchto
                      October 2008.Monthly interest onlypayments
                      ranging from 7.22% to 8.02% per annum,guaranteed
                      by equipment and Bankers’ Acceptance Bill.
                  
                  $
                  20,633,550
                  
                  $Loans
                      from Agriculture Bank, due variousdates
                      from March 2008 to May 2008. Monthly interest onlypayments
                      ranging from 7.12% to 8.31%, guaranteedby
                      equipment and Bankers’ Acceptance Bill.
                  
                  
                  3,989,610Loans
                      from Bank of China,HanCheng Branch, due variousdates
                      from May 2008 to July 2008. Monthly interestpayments
                      ranging from 6.71% to 6.90% per annum,guaranteed
                      by unrelated third parties.
                  
                  
                  9,597,000
                  
                  
                  -Loans
                      from Credit Cooperatives, due various datesfrom
                      March 2008 to July 2008. Monthly interestpayments
                      by 11.02% per annum, guaranteedby
                      an unrelated third party.
                  
                  
                  2,742,000Loans
                      from HuaXia Bank, due various dates from Januaryto
                      November 2008. Monthly interest payment ranging from5.83%
                      to 8.74% per annum, guaranteed byequipment
                      and Bankers’s Acceptance Bill.
                  
                  
                  13,819,680Loan
                      from Communication Bank, due October 2008, Quarterlyinterest
                      only payments, annual interest rate of 8.02%,guaranteed
                      by equipment.
                  
                  
                  3,427,500
                  
                  
                  -Loan
                      from China Merchants Bank, due September 2008,Monthly
                      interest payments, annual interest rate of 9.13%,guaranteed
                      by an unrelated third party and secured by land use rights
                      and
                      buildings.
                  
                  
                  6,855,000
                  
                  
                  -Totals-Long
                      Men Joint Venture
                  
                  $
                  61,064,340
                  
                  $
                  -Grand
                      totals
                  
                  $
                  93,019,608
                  
                  $
                  30,284,686
  Long
        Men
        Joint Venture also has various loans from unrelated companies and individuals
        which are due within one year. The loans are unsecured, annual interest rates
        ranging from 8% to 12%. As of December 31, 2007, these loans outstanding
        amounted to $19,156,070.
 
 F-19
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
  Short
          term notes payable
 
 Short-term
        notes payable are lines of credit extended by the banks. When purchasing
        raw
        materials, the Company often issues a short term note payable to the vendor
        funded with draws on the lines of credit. This short term note payable is
        guaranteed by the bank for its complete face value. The banks usually do
        not
        charge interest on these notes but require the Company to deposit a certain
        amount of cash at the bank as a guarantee deposit which is classified on
        the
        balance sheet as restricted cash.
  The
        Company had the following short term notes payable outstanding as of December
        31, 2007 and December 31, 2006:
 DAQIUZHUANG
                    METALDecember
                    31, 2007
                
                December
                    31, 2006China
                    Bank, Jing Hai Branch, due March 2008,restricted
                    cash required of 50%of
                    loan amount, guaranteed by the Company
                
                $
                1,588,040
                
                $
                1,487,120Agricultural
                    Bank of China, various amounts, due March 2008,restricted
                    cash required of 60% of loan amount,guaranteed
                    by the Company and an unrelated third party
                
                
                1,232,100
                
                
                1,538,400ShangHai
                    PuFa Bank, various amounts,due
                    date ranging between April and May 2008,restricted
                    cash required of 50% of loan balance,guaranteed
                    by an unrelated third party
                
                
                5,488,120
                
                
                5,128,000Totals
                    -Daqiuzhuang Metal
                
                $
                8,308,260
                
                $
                8,153,520
  LONG
                  MEN JOINT
                  VENTUREShangHai
                    Pudong Development Bank, various amounts, due datesranging
                    between January to May 2008,restricted
                    cash required of 60% of loan amount,paid
                    by Long Men Steel Group,guaranteed
                    by equipment.
                
                6,855,000
                
                -Totals-Long
                    Men Joint Venture
                
                6,855,000
                
                -Grand
                  totals
                
                $
                15,163,260
                
                $
                8,153,520
 
 Total
        interest expense for the years ended December 31, 2007, 2006 and 2005 on
        the
        debt listed above amounted to $6,589,382, $2,065,237 and $1,719,351,
        respectively. Capitalized interest amounted to $1,037,793, $186,432 and $57,844
        for the years ended December 31, 2007, 2006 and 2005, respectively.
  F-20
  GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007
 
 **Note
        9 - Customer deposits**
 
 Customer
        deposits represent amounts advanced by customers on product orders. The product
        normally is shipped within six months after receipt of the advance payment
        and
        the related sale is recognized in accordance with the Company’s revenue
        recognition policy. As of December 31, 2007 and December 31, 2006, customer
        deposits amounted to $47,084,434 including related parties deposits $9,211,736,
        and $1,093,602, respectively.
 
 **Note
        10 - Deposits due to sales representatives**
 
 Daqiuzhuang
        Metal and one of Longmen Joint Venture’s subsidiaries, Yuxin Trading, entered
        into agreements with various entities to act as the Company’s exclusive sales
        agent in a specified area. These exclusive sales agents must meet certain
        criteria and are required to deposit a certain amount of money with the Company.
        In return the sales agents receive exclusive sales rights to a specified
        area
        and discounted prices on products they order. These deposits bear no interest
        and are required to be returned to the sales agent once the agreement has
        been
        terminated. The Company had $3,068,298 and $2,051,200 in deposits due to
        sales
        representatives outstanding as of December 31, 2007 and December 31, 2006,
        respectively.
 
 **Note
        11 - Investment payable**
 
 In
        June
        2007, Yangpu Investment and the former shareholders of Qiu Steel Investment
        entered into an agreement. Pursuant to this agreement, Yangpu Investment
        received 98.7% of the total equity of Qiu Steel Investment for RMB148,000,000
        or
        approximately $19,462,000. As of December 31, 2007, Yangpu Investment had
        payable amounted to RMB48,000,000 or approximately $6,580,800.
 
 **Note
        12 - Distribution payable to minority shareholder**
 
 Distribution
        payable of $2,820,803 represents dividends owed to the minority owners of
        EPID
        and Hualong for retained earnings prior to the acquisition date.
 
 **Note
        13 - Private offering of redeemable stock**
 
 On
        September 18, 2005, the Company entered into a subscription agreement with
        certain investors to sell a total of 1,176,665 shares of common stock at
        $1.50
        per share for gross proceeds of $1,765,000, commissions totaled $158,849,
        leaving net proceeds of $1,606,151. In addition, two warrants are attached
        to
        each share of common stock giving the warrant holders the right to purchase
        2,353,330 shares of common stock. The warrants can be exercised on the second
        anniversary of the subscription date at $2.50 per share and through the third
        anniversary date at $5.00 per share. At the option of the holder, the Company
        may be required to repurchase the 1,176,665 shares of common stock 18 months
        after the closing date at a per share price of $1.95.
 
 In
        accordance with SFAS 150, The Company recorded this stock issuance as a
        liability due to the mandatory redemption provision. The shares were recorded
        at
        fair value on the date of issuance, which was the net cash proceeds, plus
        any
        accrued interest up to March 31, 2007. The difference between the net proceeds,
        $1,606,151, and the redemption amount, $2,294,497, totaling $688,346, was
        accrued and amortized as interest expense.
  F-21
 GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007
 
 As
        of
        December 31, 2007, the put option on all the redeemable shares had expired
        and
        all the shares were reclassified into equity.
 
 **Note
        14 - Convertible notes**
 
 On
        December 13, 2007, the Company entered into a Securities Purchase Agreement
        (the
“Agreement”) with certain institutional investors (the “Buyers”). Pursuant
        to the Agreement, the Company agreed to sell to the Buyers (i) senior
        convertible notes in the aggregate principal amount of $40,000,000 (“Notes”) and
        (ii) warrants to purchase 1,154,958 shares of common stock of the Company
        (the
“Warrants”).
  The
        Notes
        bear initial interest at 3% per annum, which will be increased each year
        as
        specified in the Notes, payable semi-annually in cash or shares of the Company’s
        common stock. The Notes have a five year term through December 12, 2012.
        They
        are convertible into shares of the common stock, subject to customary
        anti-dilution adjustments. The initial conversion price is $12.47. The Company
        may redeem the Notes at 100% of the principal amount, plus any accrued and
        unpaid interest, beginning December 13, 2008, provided the market price of
        the
        common stock is at least 150% of the then applicable conversion price for
        30
        consecutive trading days prior to the redemption.
 
 The
        Notes
        are secured by a first priority, perfected security interest in certain shares
        of common stock of Zuo Sheng Yu, as evidenced by the pledge agreement. The
        Notes
        are subject to events of default customary for convertible securities and
        for a
        secured financing.
  The
        Warrants grant the Buyers the right to acquire shares of common stock at
        $13.51
        per share, subject to customary anti-dilution adjustments. The Warrants may
        be
        exercised at any time on or after May 13, 2008, but not after May 13, 2013,
        the
        expiration date of the Warrants.
  In
        connection with this transaction, the Company and the Buyers entered into
        a
        registration rights agreement (the “Registration Rights Agreement”). Pursuant to
        the terms and conditions of the Registration Rights Agreement, the Company
        has
        agreed to register within 60 calendar days common stock issuable to the Buyers
        for resale on a registration statement to be effective by 90 calendar days
        or
        120 days if the registration statement is subject to a full review by the
        U.S.
        Securities and Exchange Commission. The Company shall register at least 120%
        of
        the sum of shares issuable upon conversion of the Notes, the exercise of
        the
        Warrants and the payment of interest accrued on the Notes. The registration
        rights granted under the Registration Rights Agreement are subject to customary
        exceptions and qualifications and compliance with certain registration
        procedures.
  In
        addition, certain management members of the Company also entered into a lock-up
        agreement with the Company pursuant to which each person agreed not to sell
        any
        personally owned shares one year after the initial effective date of the
        resale
        registration statement described above.
 
 Pursuant
        to the Registration Rights Agreement, the Company was required to file the
        registration statement on February 11, 2008. The Company filed the registration
        statement on February 13, 2008, which was two days after the required filing
        date. As of the date of this report, the Company reached an agreement with
        all
        note holders to waive the related penalty of $427,000.
  F-22
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 Pursuant
        to APB 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase
        Warrants, the Company discounted the Notes equal to the fair value of the
        warrants. The Notes were further discounted for the fair value of the conversion
        option. The combined discount is being amortized to interest expense over
        the
        life of the Notes using the effective interest method.
 
 The
        fair
        value of conversion option and the warrants were calculated using the Binomial
        model based on the following variables:
 
 ·
            Expected
                volatility of 105% calculated using the Company’s historical price of its
                common stock ·
            Expected
                dividend yield of 0% ·
            Risk-free
                interest rate of 3.54% and 3.61%, for the conversion option and the
                warrants, respectively ·
            Expected
                lives of five years ·
            Market
                price at issuance date of $10.43 ·
            Strike
                price of $12.47 and $13.51, for the conversion option and the warrants,
                respectively 
 Pursuant
        to SFAS 133 and EITF 00-19, the Company determined that both the warrants
        and
        the conversion option embedded in the Notes meet the definition of a derivative
        instrument and must be carried as a liability and marked to market each
        reporting period.
 
 On
        December 13, 2007, the Company recorded $34,719,062 as derivative liability,
        including $9,298,044 for the fair value of the warrants and $25,421,018 for
        fair
        value of the conversion option. The initial carrying value of the Notes was
        $5,280,938. The financing cost of $3,594,500 was recorded as deferred note
        issuance cost and is being amortized to interest expense over the term of
        the
        Notes using the effective interest method.
 
 On
        December 31, 2007, in accordance with SFAS 133, the fair value of derivative
        liabilities was recalculated and decreased $6,235,754, including $1,659,583
        for
        the decrease in fair value of the warrants and $4,576,171 for the decrease
        in
        fair value of the conversion option. The decrease was recorded as a gain
        and
        included in other income, net.
 
 As
        of
        December 31, 2007, the balance of derivative liabilities was $28,483,308,
        which
        consisted of $7,638,461 for the warrants and $20,844,847 for the conversion
        option, and the carrying value of the Notes was $5,440,416. Amortization
        of the
        debt discount totaled $159,478 was recorded as interest expense for the year
        ended December 31, 2007. The unamortized financing cost was $3,564,546 as
        of
        December 31, 2007 and $29,954 was amortized to interest expense for the
        period.
 
 **Note
        15 -** **Other
        expenses and income, net**
 
 Other
        income and expense for the years ended December 31, 2007, 2006 and 2005 consist
        of the following:
 
 December
                  31,
                2007
              
              December
                  31,
                2006
              
              December
                  31,
                2005(Restated)Finance/interest
                  expense
              
              $
              (9,296,601
              )
              $
              (2,345,031
              )
              $
              (1,905,104
              )Interest
                  income
              
              
              871,221
              
              
              182,780
              
              
              230,103Change
                  in fair value of derivative liabilities
              
              
              6,235,754
              
              
              -
              
              
              -Other
                  non-operating income
              
              
              1,484,342
              
              
              2,348,526
              
              
              12,494Other
                  non-operating expense
              
              
              (556,533
              )
              
              (103,445
              )
              
              (18,335
              )Total
                  other (expense) income
              
              $
              (1,261,817
              )
              $
              82,830
              
              $
              (1,680,842
              )
 
 F-23
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
  **Note
        16 -** **Taxes**
  **Income
        taxes**
 
 Significant
        components of the provision for income taxes on earnings from operation for
        the
        years ended December 21, 2007, 2006 and 2005 are as follows:
 
 December
                  31,
                2007
              
              December
                  31,
                2006
              
              December
                  31,
                2005Provision
                  for income taxes:Current
              
              $
              5,224,722
              
              $
              -
              
              $
              -Deferred
              
              
              (388,525
              )
              
              -
              
              
              -Total
                  provision for income taxes
              
              $
              4,836,197
              
              $
              -
              
              $
              -
 
 The
        principal component of the deferred income tax assets is as
        follows:
 
 December
                  31,
                2007
              
              December
                  31,
                2006
              
              December
                  31,
                2005Net
                  operating loss carry-forward
              
              $
              1,554,101
              
              $
              -
              
              $
              -Effective
                  tax rate
              
              
              25.0
              %
              
              -
              
              
              -Deferred
                  tax asset
              
              $
              399,751
              
              $
              -
              
              $
              -
 
 According
        to Chinese tax regulations, the net operating loss can be carried forward
        to
        offset with operating income for the next five years. Management believes
        the
        deferred tax asset is fully realizable.
 
 The
        following table reconciles the U.S. statutory rates to the Company’s effective
        tax rate for the years ended December 21, 2007, 2006 and 2005 as
        follows:
 
 December
                  31,
                2007
              
              December
                  31,
                2006
              
              December
                  31,
                2005U.S.
                  Statutory rates
              
              
              34.00
              %
              
              34
              %
              
              34
              %Foreign
                  income not recognized in USA
              
              
              -34.00
              %
              
              -34
              %
              
              -34
              %China
                  income taxes
              
              
              33.00
              %
              
              -
              
              
              -Tax
                  effect of income not taxable for tax purpose
              
              
              -3.39
              %
              
              -
              
              
              -Effect
                  of different tax rate of subsidiaries operating in other
                  jurisdictions
              
              
              -17.29
              %
              
              -
              
              
              -Total
                  provision for income taxes
              
              
              12.32
              %
              
              -
              
              
              -
  F-24
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 Under
        the
        Income Tax Laws of PRC, the Company’s subsidiary, Daqiuzhuang Metal, is
        generally subject to an income tax at an effective rate of 33% (30% state
        income
        taxes plus 3% local income taxes) on income reported in the statutory financial
        statements after appropriate tax adjustments, unless the enterprise is located
        in a specially designated region where it allows foreign enterprises a two-year
        income tax exemption and a 50% income tax reduction for the following three
        years. The
        Company ’s
        subsidiary, Daqiuzhuang Metal, became a Chinese Sino-foreign joint venture
        at
        the time of the merger on October 14, 2004 and it became eligible for the
        tax
        benefit. Daqiuzhuang Metal is
        located in Tianjin
        Costal Economic Development Zone and under
        the
        Income Tax Laws of Tianjin City of PRC, it i s
        eligible for an income tax rate of 24%. Therefore, Daqiuzhuang
        Metal is
        exempt from income taxes for the years ended December 31, 2005 and 2006 and
        is
        entitled to 50% income tax reduction of the special income tax rate of 24%,
        which is a rate of 12% for the years ended December 31, 2007, 2008 and 2009.
 
 The
        Company’s subsidiary, Longmen Joint Venture, is located in the mid-west region
        of China. It qualifies for the “Go-West” tax rebate of 15% tax rate promulgated
        by the government; therefore income tax is accrued at 15%.
 
 Baotou
        Steel Pipe Joint Venture is located in Inner Mongolia, is subject
        to an income tax at an effective rate of 33% (30% state income taxes plus
        3%
        local income taxes).
 
 For
        the
        years ended December 31, 2007, 2006 and 2005, the tax savings resulted from
        the
        tax holidays and special tax benefits granted by the China tax authority
        amounted to $8,120,589, $604,553, and $1,357,005, respectively. The tax savings
        increased the earnings per share by $0.25, $0.02, and $0.04, respectively,
        for
        year 2007, 2006 and 2005.
 
 Beginning
        January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
        existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
        (“FIEs”). The new standard EIT rate of 25% will replace the 33% rate currently
        applicable to both DES and FIEs. The two-year tax exemption and three-year
        50%
        tax reduction tax holiday for production-oriented FIEs will not be
        eliminated.
 
 **Value
        added Tax**
 
 Enterprises
        or individuals who sell commodities, engage in repair and maintenance or
        import
        and export goods in the PRC are subject to a value added tax in accordance
        with
        Chinese laws. The value added tax standard rate is 17% of the gross sales
        price.
        A credit is available whereby VAT paid on the purchases of semi-finished
        products or raw materials used in the production of the Company’s finished
        products can be used to offset the VAT due on sales of the finished product.
 
 VAT
        on
        sales and VAT on purchases amounted to $189,739,668 and $159,078,937 for
        the
        year ended December 31, 2007, $19,698,345 and $18,560,573 for the year ended
        2006 and $14,972,461 and $12,684,237 for the year ended December 31, 2005,
        respectively. Sales and purchases are recorded net of VAT collected and paid
        as
        the Company acts as an agent for the government. VAT taxes are not impacted
        by
        the income tax holiday.
  F-25
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 Taxes
        payable consisted of the following:
 
 December
                  31,
              
              December
                  31,2007
              
              2006VAT
                  taxes payable
              
              $
              20,320,241
              
              $
              5,317,466Income
                  taxes payable
              
              
              5,112,876Misc
                  taxes
              
              
              2,143,123
              
              
              74,136Totals
              
              $
              27,576,240
              
              $
              5,391,602
  **Note
        17 -** **Earnings per share**
 
 The
        calculation of earnings per share is as follows:
 
 December
                  31,
                2007
              
              December
                  31,
                2006
              
              December
                  31,
                2005Income
                  attributable to holders of common shares
              
              $
              22,425,921
              
              $
              1,033,208
              
              $
              2,740,219Basic
                  weighted average number of common shares outstanding
              
              
              32,424,652
              
              
              31,250,000
              
              
              31,250,000Add:
                  dilution effect of warrants
              
              
              133,698
              
              
              -
              
              
              -Diluted
                  weighted average number of common shares outstanding
              
              
              32,558,350
              
              
              31,250,000
              
              
              31,250,000Net
                  income per shareBasic
              
              $
              0.69
              
              $
              0.03
              
              $
              0.09Diluted
              
              $
              0.69
              
              $
              0.03
              
              $
              0.09
 
 Under
        SFAS 128 " Earnings
        per Share", paragraph 24, mandatory
        redeemable shares are excluded from the shares outstanding for both basic
        and
        diluted earnings per share. Thus, the 1,176,665 shares described in Note
        13 have
        been excluded from the earnings per share calculation for the basic and diluted
        EPS as of December 31, 2006 and 2005. In connection to the redeemable preferred
        stocks, the Company issued 2,353,330 warrants to the shareholders. As of
        December 31, 2007, the number of unexercised warrants was 233,330, which
        the
        dilution effect was calculated to be 133,698 shares by using the treasury
        method.
 
 As
        described in Note 1, the Company issued Victory
        New an aggregate of 3,092,899 shares of the Company’s Series A Preferred
        Stock to
        purchase 30% minority ownership of Daqiuzhuang Metal. The preferred stock
        can
        not be converted to common stock. Thus, the 3,092,899 shares of Series A
        Preferred Stock have been excluded from the earnings per share calculation.
 
 On
        December 13, 2007, the Company issued $40 million of convertible notes,
        convertible into 3,207,698 shares of common stock, and warrants to purchase
        1,154,958 shares of common stock. Since the note conversion price of $12.47
        and
        the warrant exercise price of $13.51 were higher than $9.47, the weighted
        average market price of the common stock for the period from the issuance
        date
        to December 31, 2007, the convertible notes and warrants were determined
        to be
        anti dilutive, and thus have been excluded from the earnings per share
        calculation.
 
 F-26
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
  **Note
        18 -** **Related party balances and transactions**
 
 The
        Company has advances to and from Golden Glister Holdings Limited (“Golden
        Glister”) for short term cash flow purposes. Golden Glister is incorporated in
        the territory of the British Virgin Islands. The Company’s Chairman, CEO and
        majority shareholder, Yu Zuo Sheng (aka Henry Yu) is the majority shareholder
        of
        Golden Glister. The Company had a receivable from Golden Glister of $850,400
        at
        December 31, 2006 and the Company was repaid in 2007.
 
 The
        Company subleased a portion of its land use rights to Tianjin Jing Qiu Steel
        Market Company, a related party under common control. The Company’s Chairman,
        CEO and majority shareholder, Yu Zuo Sheng (aka Henry Yu), is the chairman
        and
        the largest shareholder of Jing Qiu Steel Market Company. Total rental income
        for the years ended December 31, 2007, 2006, and 2005 was $1,587,995,
        $1,439,121, and $0, respectively.
 
 The
        Company’s short term loan of $6,855,000 from Shenzhen Development Bank is
        personally guaranteed by the Company’s Chairman, CEO, and majority shareholder
        Yu Zuo Sheng (aka Henry Yu).
 
 Tianjin
        Dazhan Industry Co., Ltd. (“Dazhan”) and Tianjin Hengying Trading Co., Ltd.
        (“Hengying”) are steel trading companies controlled by the Company’s Chairman,
        CEO and majority shareholder, Yu Zuo Sheng (aka Henry Yu). Dazhan and Hengying
        acted as trading agents of the Company to make purchases and sales for the
        Company. For the years ended December 31, 2007 and 2006, through Dazhan and
        Hengying, the Company purchased total of $92,584,791 and $81,888,671 of material
        from these entities, and sold $32,743,626 and $78,849,439 of finished products
        to these entities, respectively.
 
 The
        Long
        Men Joint Venture did not obtain the VAT invoices from the local tax bureau
        until late July 2007. Before obtaining VAT invoices, all the sales and purchases
        made by the joint venture were carried out through the Company’s joint venture
        partner, Long Men Group. In addition to the VAT status issue, the Long Men
        Joint
        Venture also made sales through Long Men Group for outstanding sales contracts
        signed before June 2007. Also some sales through Long Men Group were made
        due to
        the established market share and its long term relationship with the customers.
        All the sales proceeds and purchase payments were recorded as receivables
        from
        or payables to Long Men Group. The total receivable from Long Men Group is
        $67,803,956 and the total payable to Long Men Group is $75,758,145. The net
        amount is a payable of $7,954,189 to Long Men Group.
 
 Total
        related party sales amounted to $355,538,568 for the year ended December
        31,
        2007.
 
 All
        transactions with related parties are for normal business activities and
        are
        short term in nature. Settlements for the balances are usually in cash. The
        following charts summarize the related party transactions as of the years
        ended
        December 31, 2007 and 2006:
 
 a.
            Accounts
                receivable -related parties 
 As
        of
        December 31, 2007, the Company had a receivable balance of $565,631 due from
        Tianjin Jing Qiu Steel Market Co., Ltd. The Company’s Chairman, CEO and majority
        shareholder, Yu Zuo Sheng (aka Henry Yu) is a shareholder of Tianjin Jing
        Qiu.
  F-27
 GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007
  b.
            Short
                term loan receivable - related parties 
 AS
        of
        December 31, 2007, the Company had a short term loan receivable from Tianjin
        Jing Qiu amounted to $1,233,900. This loan was made for short term cash flow
        needs and will be repaid upon request.
 
 c.
            Other
                receivables - related parties 
 Name
                  of related parties
              
              December
                  31,
                2007
              
              December
                  31,
                2006Golden
                  Glister
              
              $
              -
              
              $
              850,400Beijing
                  Wendlar
              
              
              1,033,713
              
              
              -Yang
                  Pu Capital Automobile
              
              
              616,950
              
              
              -Tianjin
                  Jin Qiu Steel Market
              
              
              137,100
              
              
              -Tong
                  Xin Ye Jin
              
              
              48,830
              
              
              -Yang
                  Pu Sheng Xin
              
              
              74,113
              
              
              -Yang
                  Pu Sheng Hua
              
              
              2,742
              
              
              -$
              1,913,448
              
              $
              850,400
 
 d.
            Advances
                on inventory purchases - related parties 
 Name
                  of related parties
              
              December
                  31,
                2007
              
              December
                  31,
                2006Hengying
              
              $
              8,014,211
              
              $
              -Dazhan
              
              
              1,929,801
              
              
              -$
              9,944,012
              
              $
              -
 
 e.
            Prepaid
                expenses - related parties 
 During
        2007, the Company prepaid rental fee for employee dormitory to a related
        party,
        Beijing Wendlar, a company controlled by Mr. Yu Zuo Sheng (aka Henry Yu).
        As of
        December 31, 2007, the Company had a balance of the prepayment of $191,823,
        in
        which $49,356 was current and $142,467 was classified as non current.
 
 f.
            Accounts
                payable due to related parties 
 Name
                  of related parties
              
              December
                  31,
                2007
              
              December
                  31,
                2006Long
                  Men Group
              
              $
              7,954,189
              
              $
              -Dazhan
              
              
              4,249,395
              
              
              -Henan
                  Xinmi Kanghua
              
              
              356,567
              
              
              -Zhengzhou
                  Shenglong
              
              
              269,917
              
              
              -Baotou
                  Shengda Steel Pipe
              
              
              1,472,670
              
              
              -$
              14,302,738
              
              $
              -
  F-28
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 g.
            Short
                term loan due to related parties 
 Name
                  of related parties
              
              December
                  31,
                2007
              
              December
                  31,
                2006HanCheng
                  TongXing
              
              $
              7,317,027
              
              $
              -
 
 h.
            Other
                payables due to related parties 
 Name
                  of related parties
              
              December
                  31,
                2007
              
              December
                  31,
                2006Beijing
                  Wandler
              
              $
              34,275
              
              $
              -Tianjin
                  Jin Qiu Steel Market
              
              
              1,487,600
              
              
              -Hengying
              
              
              563,816
              
              
              -Baotou
                  Shengda Steel Pipe
              
              
              31,095
              
              
              -Baogang
                  Jian An
              
              
              9,597
              
              
              -$
              2,126,383
              
              $
              -
 
 i.
            Customer
                deposits - related parties 
 Name
                  of related parties
              
              December
                  31,
                2007
              
              December
                  31,
                2006Hengying
              
              $
              6,855,000
              
              $
              -Haiyan
              
              
              2,356,736
              
              
              -$
              9,211,736
              
              $
              -
  Transactions
        with related parties are as follows:
 
 (a)
            Sales
                of goods 
 Name
                  of related parties
              
              Year
                  ended December 31,
                2007
              
              Year
                  ended December 31,
                2006
              
              Year
                  ended December 31,
                2005Shaanxi
                  Longmen Steel Group
              
              $
              355,538,568
              
              $
              -
              
              $
              -$
              355,538,568
              
              $
              -
              
              $
              -
  F-29
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 (b)
            Purchase
                of goods 
 Name
                  of related parties
              
              Year
                  ended December 31,
                2007
              
              Year
                  ended December 31,
                2006
              
              Year
                  ended December 31,
                2005Shaanxi
                  Longmen Iron and Steel Group Co., Ltd.
              
              $
              175,380,794
              
              $
              -
              
              $
              -$
              175,380,794
              
              $
              -
              
              $
              -
 
 (c)
            Rental
                income 
 Name
                  of related parties
              
              Year
                  ended December 31,
                2007
              
              Year
                  ended December 31,
                2006
              
              Year
                  ended December 31,
                2005Tianjin
                  Jing Qiu Steel Market Co., Ltd.
              
              $
              1,580,040
              
              $
              1,439,121
              
              $
              -$
              1,580,040
              
              $
              1,439,121
              
              $
              -
 
 **Note
        19 -** **Business
        combinations**
 
 **a.
        Acquisition of 30% minority interest of Daqiuzhuang Metal**
 
 As
        previously described in Note 1, on
        May
        18, 2007, General Steel entered into a Purchase Agreement with Victory New
        Holdings to acquire the remaining 30% interest in Daqiuzhuang Metal. General
        Steel agreed to issue Victory New 3,092,899 shares of Series A Preferred
        Stock
        which have a voting power of 30% of the combined voting power of the Company’s
        common and preferred stock for the life of the Company. As a result of the
        acquisition, the Company increased its equity interest in Daqiuzhuang Metal
        from
        70% to 100%. On May 23, 2007, the Company transferred its 30% interest in
        Daqiuzhuang Metal to General Steel Investment (BVI). As a result of this
        transfer, General Steel Investment (BVI) holds 100% of equity interest of
        Daqiuzhuang Metal.
 
 Victory
        New Holdings Ltd. is a newly formed entity under the control of the Company’s
        Chairman, CEO and majority shareholder Zuosheng Yu (aka Henry Yu). Victory
        New
        was legally owned by Mrs. Yang, Baoyin, Mr. Yu’s mother. Therefore, General
        Steel and Victory New were under common control. According to FASB
        Statement No. 141, "Business Combinations", a cquisition
        of minority interests from entities under common control should be accounted
        for
        using the purchase method. The
        Company engaged a third party to determine the fair value of
        transaction ,
        which
        was $8,374,000. The premium over book value of $2,188,203 was accounted for
        as
        dividend distribution to the shareholder of Victory New.
 
 **b.
        Joint venture agreement with Baotou Steel**
 
 As
        Mentioned in Note 1, on April 27, 2007, Daqiuzhuang Metal, a wholly owned
        subsidiary of the Company, and Baotou Iron and Steel Group Co., Ltd. (“Baotou
        Steel”) entered into an Amended and Restated Joint Venture Agreement (the
“Amended agreement”), amending the Joint Venture Agreement entered into on
        September 28, 2005 (“Original Joint Venture Agreement”). The Amended agreement
        increased Daqiuzhuang Metal's ownership interest in the Joint Venture from
        20%
        to 80%.
  F-30
  GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007
 
 The
        Amended agreement states that the initial capital of the joint venture company
        will be approximately $6,400,000, equal to the registered capital. Baotou
        Steel
        will contribute RMB10,000,000, or approximately $1,270,000, and Daqiuzhuang
        Metal will contribute RMB40,000,000, or approximately $5,130,000. Daqiuzhuang
        Metal and Baotou Steel each contributed 30% of their portion of the registered
        capital to commence the business. This joint venture obtained its business
        license on  May
        25,
        2007. Operations began in the third quarter of 2007.
 
 The
        joint
        venture’s name is Baotou Steel - General Steel Special Steel Pipe Joint Venture
        Company Limited, a limited liability company formed under the laws of the
        PRC.
        Baotou Steel Pipe Joint Venture is located at Kundulun District, Baotou city,
        Inner Mongolia, China. It produces and sells spiral-weld steel
        pipes.
 
 The
        ownership is as follows:
 %
                  OwnershipBaotou
                  Iron and Steel (Group) Co., Ltd.
              20%Daqiuzhuang
                  Metal Sheet Co., Ltd
              
              80%
 
 **c.
        Shaanxi Longmen Iron and Steel Co., Ltd** **Joint Venture**
 
 As
        described in Note 1, on June 15, 2007, General Steel Holdings Inc. and Shaanxi
        Longmen Iron and Steel (Group) Co., Ltd. (”Longmen Group”) signed an agreement
        to form Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”).
        Longmen Group contributed the operating facility and corresponding debt with
        an
        appraised net asset value of RMB200 million. General Steel Holdings, Inc.
        contributed RMB300 million to the Longmen Joint Venture through its subsidiaries
        Daqiuzhuang Metal and Qiu Steel Investment. Daqiuzhuang Metal and Qiu Steel
        Investment contributed RMB160,000,000 and RMB140,000,000 in cash, respectively,
        and hold 32% and 28% ownership, respectively, or 60% collectively. Longmen
        Group
        owns 40% of the Longmen Joint Venture. The Longmen Joint Venture obtained
        the
        business license on June 22, 2007.
 
 Assets
        acquired and debts assumed in the transaction are listed as below:
 
 Item
              
              Fair
                  Value
              
              Acquired
                  / Assumed by Longmen Joint VentureCurrent
                  assets
              
              $
              317,744,960
              
              $
              98,530,222Property,
                  plant, and equipment
              
              
              186,915,879
              
              
              164,811,374Intangible
                  assets
              
              
              20,128,972
              
              
              19,543,875Other
                  assets
              
              
              99,604,841Total
                  assets
              
              
              624,394,652
              
              
              282,885,471Current
                  liability
              
              
              473,168,746
              
              
              223,776,221Long
                  term liability
              
              
              38,246,111
              
              
              32,809,250Total
                  liabilities
              
              
              511,414,857
              
              
              256,585,471Net
                  assets
              
              $
              112,979,795
              
              $
              26,300,000
  F-31
  GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
        31, 2007
  On
        September 24, 2007, Longmen Joint Venture acquired 74.92% ownership interest
        in
        Environmental Protection Industry Development Co., Ltd. (“EPID)” for RMB18.0
        million or $2.4 million and a 36% equity interest in Hualong Fire Retardant
        Materials Co., Ltd., (“Hualong”) for RMB3.3 million or $0.4 million. The parties
        agreed to make the effective date of the transaction July 1, 2007. Due to
        EPID,
        Hualong, and Longmen Joint Venture being under common management control,
        this
        transaction was recorded at the book value as of the effective date.
 
 Assets
        acquired and debts assumed in the transaction are listed as below:
 
 EPID
              
              Fair
                  Value
              
              Acquired
                    / Assumed by
                Longmen
                  Joint Venture (74.92%)Current
                  assets
              
              $
              2,609,601
              
              $
              1,955,113Property,
                  plant, and equipment
              
              
              5,619,646
              
              
              4,210,239Total
                  assets
              
              
              8,229,247
              
              
              6,165,352Total
                  liabilities
              
              
              5,055,550
              
              
              3,787,618Net
                  assets
              
              $
              3,173,697
              
              $
              2,377,734
 
 
 Hualong
              
              Fair
                  Value
              
              Acquired
                    / Assumed by
                Longmen
                  Joint Venture (36%)Current
                  assets
              
              $
              3,905,068
              
              $
              1,405,824Property,
                  plant, and equipment
              
              
              1,653,693
              
              
              595,330Total
                  assets
              
              
              5,558,761
              
              
              2,001,154Total
                  liabilities
              
              
              4,357,736
              
              
              1,568,785Net
                  assets
              
              $
              1,201,025
              
              $
              432,369
 
 **d.
        Pro Forma**
 
 The
        following unaudited pro forma condensed income statements for the years ended
        December 31, 2007 and 2006 were prepared under generally accepted accounting
        principles as if the Longmen Joint Venture transactions had occurred on January
        1, 2006. The pro forma information may not be indicative of the results that
        would have occurred if the acquisition had been in effect from and on the
        dates
        indicated or which may be obtained in the future.
  F-32
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 Pro
        Forma
        Condensed Income Statements:
 
 For
                  the year
              
              For
                  the yearended
              
              endedDecember
                  31, 2007
              
              December
                  31, 2006(In
                  Million $)
              
              (In
                  million $)Sales
              
              $
              1,278.47
              
              $
              842.94Cost
                  of sales
              
              
              1,170.87
              
              
              796.34Gross
                  Profit
              
              
              107.60
              
              
              46.60SG&A
                  expenses
              
              
              28.19
              
              
              16.40Other
                  expense
              
              
              14.90
              
              
              5.98Income
                  before income tax and minority interest
              
              
              64.51
              
              
              24.22Income
                  tax
              
              
              6.37
              
              
              2.99Net
                  income before minority interest
              
              
              58.14
              
              
              21.23Minority
                  interest
              
              
              19.52
              
              
              7.73Net
                  income
              
              $
              38.62
              
              $
              13.50
 
 **Note
        20 - Supplemental disclosure of cash flow information**
 
 I nterest
        paid amounted to $6,404,834, $2,065,237 and $1,785,558 for the years ended
        December 31, 2007, 2006 and 2005, respectively.
 
 Income
        tax payments amounted to $183,984, $0, and $490,431 for the
        years ended December 31, 2007, 2006 and 2005, respectively.
 
 In
        May
        2007, the Company issued 3,092,899 shares of preferred stock with a fair
        value
        of $8,374,000 to the shareholders of Victory New Holdings Inc. to purchase
        the
        30% the minority ownership of Daqiuzhuang Metal.
 
 On
        March
        1, 2007 and September 1, 2007, 176,665 and 1,000,000 shares of redeemable
        stock
        were converted at $1.95 resulting in a reclassification of the shares from
        liabilities to equity,
 
 **Note
        21- Shareholder’s equity**
 
 On
        February 12, 2007, the Company issued to Aurelius Consulting Group, Inc.
        (also
        known as RedChip Companies, Inc.) 18,000 shares of common stock in the amount
        of
        $23,742 as a portion of its compensation for investor relations services
        rendered. Those shares were valued at the market price at the date of the
        agreement.
 
 On
        March
        1, 2007, as discussed in Note 14, 1,176,665 shares of redeemable stock were
        reclassified from liabilities to common stock upon expiration of the redemption
        feature.
 
 2,120,000
        warrants were converted to common stock at $2.50 per share in September,
        2007
        for total proceed of $5,300,000 in cash.
 
 On
        October 01, 2007, the Company issued senior management and directors 70,100
        shares of common stock at $8.16 per share, as compensation. The shares were
        valued at the market price on the date granted. The Company recorded
        compensation expense of $572,016 for the year ended December 31,
        2007.
  **Note
        22 - Retirement plan**
 
 Regulations
        in the People’s Republic of China require the Company to contribute to a defined
        contribution retirement plan for all employees. All Joint Venture employees
        are
        entitled to a retirement pension amount calculated based upon their salary
        at
        their date of retirement and their length of service in accordance with a
        government managed pension plan. The PRC government is responsible for the
        pension liability to the retired staff. It was the first year the Company
        was
        required to make contributions to the state retirement plan. The Company
        is
        required to contribute 20% of the employees’ monthly salary. Employees are
        required to contribute 7% of their salary to the plan. Total pension expense
        incurred by the Company amounted to $1,624,935, $346,385 and $236,730
        for the years ended December
        31, 2007 , 2006 and
        2005, respectively.
  F-33
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
  **Note
        23 - Statutory reserves**
 
 The
        laws
        and regulations of the People’s Republic of China require that before an
        enterprise distributes profits to its partners, it must first satisfy all
        tax
        liabilities, provide for losses in previous years, and make allocations,
        in
        proportions determined at the discretion of the board of directors, to the
        statutory reserves. The statutory reserves include the surplus reserve funds
        and
        the enterprise fund and t hese
        statutory reserves represent restricted retained earnings.
 
 Surplus
        reserve fund
 
 The
        Company is required to transfer 10% of its net income, as determined in
        accordance with the PRC accounting rules and regulations, to a statutory
        surplus
        reserve fund until such reserve balance reaches 50% of the Company’s registered
        capital.
 
 The
        transfer to this reserve must be made before distribution of any dividend
        to
        shareholders. For
        the
        years ended December 31, 2007, 2006 and
        2005,
        the Company transferred $2,525,315, $266,257, and $685,959 to this reserve.
        The
        surplus reserve fund is non-distributable other than during liquidation and
        can
        be used to fund previous years’ losses, if any, and may be utilized for business
        expansion or converted into share capital by issuing new shares to existing
        shareholders in proportion to their shareholding or by increasing the par
        value
        of the shares currently held by them, provided that the remaining reserve
        balance after such issue is not less than 25% of the registered
        capital.
 
 **Note
        24 - Commitment and contingencies**
 
 The
        Company is obligated to contribute RMB40,000,000, or approximately $5,130,000,
        as registered capital to Baotou Steel Pipe Joint Venture. The Company has
        already made a capital contribution of approximately $1,734,200 through December
        31, 2007, and the balance will be contributed in 2008, from the operating
        cash
        flow of Daqiuzhuang Metal.
 
 Daqiuzhuang
        Metal provides dormitory facilities for its employees under a 10 year rental
        contract. The agreement began January 2006 and required full prepayment for
        the
        10 year period totaling $466,200. Total
        rental expense for the years ended December 31, 2007 and 2006 amounted to
        $47,639 and $45,343, respectively.
 
 Daqiuzhuang
        Metal rented land for 50 years starting September 2005. The agreement called
        for
        Daqiuzhuang Metal to pay the first three years’ rent payments upon signing the
        agreement. The balance due for the remaining 47 years payment is due in
        September 2008, after the lessor has assisted Daqiuzhuang Metal in obtaining
        the
        appropriate land use rights. Total amount of the rent over the 50 years period
        is approximately $1,044,728 (or RMB8,067,400).
 
 At
        December 31, 2007, total future minimum lease payments for the unpaid portion
        under an operating lease were as follows:
 
 For
                  the year ended December 31,
              
              Amount2008
              
              
              424,909Thereafter
              
              $
              -
 
 Total
        rental expense of the land use right for the years ended December 31, 2007
        and
        2006 amounted to $21,351, $20,260 and $19,879, respectively.
 
 **Note
        25 - Subsequent events**
 
 On
        January 14th, 2008, the Company through Longmen Joint Venture, completed
        its
        acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co.,
        Ltd.
        (“Tongxing”). Tongxing contributed its land use right of 217,487 square meters
        (approximately 53 acres) with an the appraised value of approximately $4.1
        million (or RMB30,227,333). Pursuant to the agreement, the land will be
        converted into shares valued at approximately $3.1 million (RMB22,744,419),
        providing the Joint Venture stake of 22.76% ownership in Tongxing and making
        it
        Tongxing’s largest and controlling shareholder. Tongxing has two core operating
        areas: coking coal production and rebar processing. Its coking coal operations
        have an annual production capacity of 250,000 tons. Its rebar processing
        facility has an annualized rolling capacity of 300,000 tons.
 
 F-34




**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURES.**





Not
      applicable.





**Item
      9A(T). CONTROLS AND PROCEDURES.**





Disclosure
      Controls and Procedures




Our
      management, with the participation of our chief executive officer and chief
      financial officer, evaluated the effectiveness of our disclosure controls and
      procedures as of December 31, 2007. The term “disclosure controls and
      procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
      means controls and other procedures of a company that are designed to ensure
      that information required to be disclosed by a company in the reports that
      it
      files or submits under the Exchange Act is recorded, processed, summarized
      and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed by a company in the reports that it files or submits
      under the Exchange Act is accumulated and communicated to the company’s
      management, including its principal executive and principal financial officers,
      as appropriate to allow timely decisions regarding required disclosure.
      Management recognizes that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving their
      objectives and management necessarily applies its judgment in evaluating the
      cost-benefit relationship of possible controls and procedures. Based on the
      evaluation of our disclosure controls and procedures as of December 31, 2007,
      our chief executive officer and chief financial officer concluded that, as
      of
      such date, our disclosure controls and procedures were effective at the
      reasonable assurance level.




Internal
      Control Over Financial Reporting




Management’s
      Annual Report on Internal Control Over Financial Reporting




The
      management of the company is responsible for establishing and maintaining
      adequate internal control over financial reporting for the company. Internal
      control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
      promulgated under the Securities Exchange Act of 1934 as a process designed
      by,
      or under the supervision of, the company’s principal executive and principal
      financial officers and effected by the company’s board of directors, management
      and other personnel, to provide reasonable assurance regarding the reliability
      of financial reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting principals and
      includes those policies and procedures that:




· Pertain
      to the maintenance of records that in reasonable detail accurately and fairly
      reflect the transactions and dispositions of the assets of the company;




· 
Provide
      reasonable assurance that
      transactions are recorded as necessary to permit preparation of financial
      statements in accordance with generally accepted accounting principles, and
      that
      receipts and expenditures of the company are being made only in accordance
      with
      authorizations of management and directors of the company; and




· 
Provide
      reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use or
      disposition of the company’s assets that could have a material effect on the
      financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Projections of any evaluation of effectiveness
      to future periods are subject to the risk that controls may become inadequate
      because of changes in conditions, or that the degree of compliance with the
      policies or procedures may deteriorate.




35





The
      company’s management assessed the effectiveness of the company’s internal
      control over financial reporting as of December 31, 2007. In making this
      assessment, the company’s management used the criteria set forth by the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
      Internal Control-Integrated Framework.




Based
      on
      our assessment, management concluded that, as of December 31, 2007, our internal
      control over financial reporting is effective.




This
      annual report does not include an attestation report of the company’s
      independent registered public accounting firm regarding internal control over
      financial reporting. Management’s report was not subject to attestation by the
      company’s independent registered public accounting firm pursuant to temporary
      rules of the Securities and Exchange Commission that permit the company to
      provide only management’s report in this annual report.




Changes
      in Internal Control Over Financial Reporting




The
      Baotou Steel Pipe JV and Longmen JV formed during the year ended 12/31/2007
      increased the burden of employing adequate controls over financial reporting.
      We
      believe that the controls over financial reporting in place at the two acquired
      operations at the time of acquisition were and remained adequate. Management
      has
      reviewed these controls and believes that there was no condition with the
      Company’s internal control over financial reporting that materially affected, or
      was reasonably likely to materially affect, this control.





**ITEM
      9B. OTHER INFORMATION.**





Not
      applicable





**PART
      III**





**ITEM
      10.** **DIRECTORS
      AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**





MANAGEMENT




Directors
      and executive officers




The
      following table sets forth the names and ages of our current directors and
      executive officers, their principal offices and positions and the date each
      such
      person became our director or executive officer. Our executive officers are
      elected annually by the board of directors. Our directors serve one-year terms
      until they are re-elected or their successors are elected. The executive
      officers serve by election of the board of directors for one year terms or
      until
      their death, resignation, removal or renewal by the board of directors. Other
      than described below, there are no family relationships between any of the
      directors and executive officers. In addition, there was no arrangement or
      understanding between any executive officer and any other person pursuant to
      which any person was selected as an executive officer.




The
      executive officers are all full time employees of General Steel Holdings,
      Inc.




The
      directors and executive officers of General Steel Holdings, Inc. are as
      follows:





**Name**
            
            **Age**
            
            **Position**
            
            **Date
                of****appointment**Zuosheng
                Yu
            
            43
            
            Chairman
                of the Board of Directors and Chief Executive Officer
            
            10/14/04John
                Chen
            
            36
            
            Director
                / Chief Financial Officer
            
            3/07/05Danli
                Zhang
            
            53
            
            Director,
                General Manager of Longmen Joint Venture
            
            8/28/07Ross
                Warner
            
            44
            
            Director
            
            8/24/05John
                Wong
            
            41
            
            Independent
                Director
            
            8/24/05Qinghai
                Du
            
            70
            
            Independent
                Director
            
            8/28/07Zhongkui
                Cao
            
            58
            
            Independent
                Director
            
            4/13/07Chris
                Wang
            
            37
            
            Independent
                Director
            
            11/13/07Fred
                Hsu
            
            44
            
            Independent
                Director
            
            8/28/07





36


Our
      directors are generally elected until the next annual meeting of shareholders
      and until their successors are elected and qualified, or until their earlier
      resignation or removal. Each director’s term of office is one year.




**Audit
      Committee**




Our
      audit
      committee consists of John Wong, Fred Hsu and Zhongkui Cao. John Wong is the
      chairman of the audit committee. The audit committee held four meetings
      during fiscal year 2007.





The
      primary responsibilities of the audit committee are to review the results of
      the
      annual audit and to discuss the financial statements, including the independent
      auditors’ judgment about the quality of accounting principles, the
      reasonableness of significant judgments, and the clarity of the disclosures
      in
      the financial statements. Additionally, the audit committee meets with our
      independent auditors to review the interim financial statements prior to the
      filing of our Quarterly Reports on Form 10-Q, recommends to our board of
      directors the independent auditors to be retained by us, oversees the
      independence of the independent auditors, evaluates the independent auditors’
performance, receives and considers the independent auditors’ comments as to
      controls, adequacy of staff and management performance and procedures in
      connection with audit and financial controls, including our system to monitor
      and manage business risks and legal and ethical compliance programs audit and
      non-audit services provided to us by our independent auditors, considers
      conflicts of interest involving executive officers or board members. Our board
      of directors has determined that Mr. Wong is an “audit committee financial
      expert” as defined by the SEC, and that each member of the audit committee is
      independent.





To
      the
      best of our knowledge, none of the following ever occurred to any of our
      directors and officers.




(1)
        Any bankruptcy petition filed by or against any business of which such
      person was a general partner or executive officer either at the time of the
      bankruptcy or within two years prior to that time;




(2)
        Any conviction in a criminal proceeding or being subject to a pending
      criminal proceeding (excluding traffic violations and other minor
      offenses);




(3)
        Being subject to any order, judgment, or decree, not subsequently
      reversed, suspended or vacated, of any court of competent jurisdiction,
      permanently or temporarily enjoining, barring, suspending or otherwise limiting
      his involvement in any type of business, securities or banking activities;
      or




(4)
        Being found by a court of competent jurisdiction (in a civil action), the
      SEC or the Commodity Futures Trading Commission to have violated a federal
      or
      state securities or commodities law, and the judgment has not been reversed,
      suspended, or vacated.




Biographical
      information




*Mr.
      Zuosheng Yu Chief Executive Officer and Chairman* ,
      joined
      us in October 2004 and became a Chairman of the Board at that time. From April
      1986 to February 1992, he was President of Daqiuzhuang Metal Sheets Factory,
      Tianjin, China. From February 1992 to December 1999, he was General Manager
      of
      Sheng Da Industrial Company, Tianjin, China. From November 1999 to March 2001,
      he was President and Chairman of Board of Directors of Sheng Da Machinery
      Manufactory, Tianjin, China. Since February 2001, he is President and Chairman
      of Board of Directors of Beijing Wendlar Investment Management Group, Beijing,
      China. Since March 2001, he is President and Chairman of Board of Directors
      of
      Baotou Sheng Da Steel Pipe Limited, Inner Mongolia, China and Chairman of Board
      of Directors of Sheng Da Steel and Iron Mill, Hebei province, China. Since
      April
      2001, he is President and Chairman of Sheng Da Industrial Park Real Estate
      Development Limited. Since December 2001, Mr. Yu has been President
      and Chairman of Beijing Shou Lun Real Estate Development Company, Beijing,
      China.




Mr.
      Yu
      graduated in 1985 graduated from Sciences and Engineering Institute, Tianjin,
      China. In July 1994, he received Bachelor degree from Institute of Business
      Management for Officers. Mr. Yu received the title of “Senior Economist” from
      the Committee of Science and Technology of Tianjin City in 1994. In July 1997,
      he received a MBA degree from the Graduate School of Tianjin Party University.
      Since April 2003, Mr. Yu has held a position as a member of China’s APEC (Asia
      Pacific Economic Co-operation) Development Council.




37




*Mr.
      John Chen, Director and Chief Financial Officer* .
      Mr.
      John Chen joined us in May 2004. He is the Chief Financial Officer and a
      Director. From August 1997 to July 2003, he was senior accountant at Moore
      Stephens Wurth Frazer and Torbet, LLP, Los Angeles, California, USA. He
      graduated from Norman Bethune University of Medical Science, Changchun city,
      Jilin province, China in September 1992. He received B.S. degree in accounting
      from California State Polytechnic University, Pomona, California, USA in July
      1997.





*Mr.
      Ross Warner, Director.* Mr.
      Warner was elected as a director in March 2005. From July 2003 to October 2006,
      he was the Chief of Operations at OCDF. From July 2002 to June 2003, he was
      the
      country manager for English First in charge of China and Vietnam. From April
      2001 to July 2002, he was the non-technical training manager at TTI-China.
      From
      July 1998 to December 2000, he worked as the consultant at Info Technology
      Group, Inc.-Beijing Office. Mr. Warner obtained an MBA from Thunderbird Graduate
      School in 1988.





*Mr.
      Danli Zhang, Director and General Manager of Longmen Joint
      Venture.* Mr.
      Zhang joined us in August 2007. He is currently the General Manager of Shaanxi
      Longmen Iron and Steel Co., Ltd. For more than 30 years, Mr. Zhang has been
      working at Shaanxi Longmen Iron and Steel Group in various positions. Mr. Zhang
      received his bachelor’s degree from the Xi’an University of Technology and
      Architecture in 1982.





*Mr.
      Qinghai Du, Independent Director.* Mr. Du
      joined us in August 2007. Mr. Du is currently the General Engineer for Beijing
      Industrial Design and Research Institute. During the past forty years, he as
      served as the Chief Engineer and Section Chief at both Baotou Design and
      Research Institute of Iron and Steel, and the Design Institute of Capital Iron
      and Steel. Mr. Du received his bachelor degree in Iron and Steel Metallurgy
      from
      the Beijing University of Science and Technology, formerly known as Beijing
      University of Iron and Steel Technology, in 1963.





*Mr.
      Zhongkui Cao, Independent Director.* Mr. Cao
      joined us in April 2007. He is currently the Chairman of Baogang United Steel,
      the Shanghai Stock Exchange publicly traded subsidiary of Baotou Iron and Steel
      Group. Previously, Mr. Cao was President and Chairman of the Board at Baotou
      Metallurgy Machinery State-owned Asset Management Co. Mr. Cao graduated from
      Baotou Institute of Iron and Steel in 1974.




*Mr.
      John Wong, Independent Director.* Mr. Wong
      was elected as the independent director in August 2005. From June 2003 to
      present, he is the managing partner of Vantage & Associates. From January
      2000 to March 2003, he was the director at Deloitte Touche Corporate Finance,
      Shanghai. From July 1998 to December 1999, he was director of Amrex Capitals.
      From July 1996 to June 1998, he worked as senior audit manager at Ernest &
Young, Hong Kong. Mr. Wong graduated from Melbourne University in 1989. He
      obtained Independent Directorship Certificate in 2002.





*Mr.
      Chris Wang, Independent Director.* Mr.
      Wang
      was elected as the independent director in November 2007. He is currently the
      President and Chief Financial Officer of Fushi Copperweld, Inc., a NASDAQ listed
      company. From November 2004 to March 2005, Mr. Wang was Executive Vice President
      at Redwood Capital. From September 2002 through November 2004, Mr. Wang was
      an
      assistant Vice President in the portfolio management department at Century
      Investment Corporation and before that, in 2001, was a summer associate with
      the
      Credit Suisse First Boston investment banking team in Hong Kong. Mr. Wang
      received a degree in English from Beijing University of Science and Technology
      in 1994 and a MBA in Finance and Corporate Accounting from the University of
      Rochester in New York in 2002.





*Mr.
      Fred Hsu, Independent Director* .
      Mr. Hsu
      joined us in August 2007. He is currently the Managing Director of Sagem
      Communications China, a division of Safran Inc., a global 500 company based
      in
      Paris, France. From 1998 to 2003 he was General Manager for Philips Electronics
      Wired Telecommunications Business Unit. From 1993 to 1998, he was the Chief
      Financial Officer for Wella Cosmetics, China. Mr. Hsu received a BBA degree
      in
      International Trade and Finance from Louisiana State University in 1987. Mr.
      Hsu
      obtained an MBA from Thunderbird Graduate School in 1988.




38





Indemnification




Our
      articles of incorporation limit the liability of directors to the maximum extent
      permitted by Nevada law. This limitation of liability is subject to exceptions
      including intentional misconduct, obtaining an improper personal benefit and
      abdication or reckless disregard of director duties. Our articles of
      incorporation and bylaws provide that we may indemnify our directors, officer,
      employees and other agents to the fullest extent permitted by law. Our bylaws
      also permit us to secure insurance on behalf of any officer, director, employee
      or other agent for any liability arising out of his or her actions in such
      capacity, regardless of whether the bylaws would permit indemnification. We
      currently do not have such an insurance policy.





Code
      of
      Ethics and Business Conduct





Our
      Code
      of Ethics and Corporate Governance Guidelines is available on our website at
      the
      following address: http://www.gshi-steel.com/gshi2/NewsCenter.php?ID=33&nID=112 . Our
      Code of Ethics and Corporate Governance Guidelines provides information:





·
            To
                guide employees so that their business conduct is consistent with
                our
                ethical standards;·
            To
                improve the understanding of our ethical standards among customers,
                suppliers and others outside the Company.





Our
      Code
      of Ethics and Corporate Governance Guidelines may also be obtained free of
      charge by contacting Ross Warner at ross@gshi-steel.com or
      by
      phone: 86-10-5879-7346





**ITEM
      11. EXECUTIVE COMPENSATION**





**Compensation
      Discussion and Analysis**





**Compensation
      Philosophy**





At
      this
      point in our growth, we compensate our CEO, CFO and senior management through
      salary and fully-vested unregistered shares of our common stock. We do not
      currently provide a bonus program, severance benefit program, retirement plan
      or
      change in control benefits program. We have engaged a human resources consultant
      to advise us in developing our compensation philosophy and practice and
      anticipate implementing many of their recommendations during 2008.





The
      competition for senior management among Chinese companies listed on a US stock
      exchange is fierce. We compete against companies that are much larger and have
      greater financial resources with which to attract and retain managers. We do
      not
      try to compete for senior management with other companies on the basis
      compensation. Instead, we seek to attract and retain qualified candidates who
      embrace our vision, realize our long-term potential and are motivated by being
      pioneers in the field of State Owned Enterprise (SOE) privatization.





We
      spend
      a great deal of effort and time communicating our vision to those considering
      working for us. It is vitally important that everyone working for us be
      committed to our vision and understands our commitment to growing the company.
      Our CEO plays an integral role in instilling this vision on an on-going basis
      with all our staff. Our work culture is very much like that of an
      entrepreneurial company characterized by high trust, high loyalty and a high
      personal sacrifice to current financial reward ratio.





We
      have
      been successful in recruiting and retaining senior management using our
      compensation philosophy. Since 2004 when the company became listed on the OTCBB,
      we have not had any staff resignations among our senior management team. We
      view
      this as a validation that we have followed the correct compensation philosophy
      for this stage in our company’s development.





**Current
      Status**





We
      understand the salary and stock award amounts may be generally less than those
      earned by senior managers at other Chinese companies listed on US stock
      exchanges, and are also likely significantly less than the amounts paid to
      senior managers of other publicly traded US companies. In determining ranges
      for
      these salaries and stock award amounts, we followed the principal that we are
      a
      developing company pursuing a goal to rapidly become a significantly larger
      company. As such, at this stage of development, we believe it is in our
      stockholders’ best interest to reinvest as much profit as possible back into the
      company. However, we also feel that notwithstanding these lower salaries and
      stock awards, our CEO and CFO remain properly incentivized, through a
      combination of their non-compensatory stock holdings and the possibility of
      higher compensation in the future, to grow the Company and build stockholder
      value.




39





**Compensation
      Elements and Procedure**





The
      salary amounts for our CEO and the CFO are determined through individual
      negotiations: our CFO negotiates his salary with our CEO, and our CEO negotiates
      his salary with our Compensation Committee. We have not used any industry
      benchmarking studies to determine these amounts. The CEO and CFO salaries are
      paid in full, in RMB, in monthly installments and receive the standard salary
      tax recording treatment. The stock award amounts are determined by our
      Compensation Committee. We believe the amounts of these salaries and stock
      awards adequately reward our CEO and CFO for their yearly total contributions
      to
      the company. We are not currently party to employment agreements with our CEO
      and CFO and as such we do not have any obligations relating to the termination
      of these employees or changes in control provisions.





The
      CEO
      annually reviews the work performance of the CFO and lower level managers.
      In
      general, the CEO subjectively evaluates the work performance of our CFO and
      other senior management based on the job function the executive is expected
      to
      fulfill in the management of the company. During 2007, our CEO had final
      authority on decisions relating to salary amounts and adjustments, except his
      own, which the Board of Directors must approve. Going forward, the Compensation
      Committee will have the final authority on decisions relating to compensation
      for all of our management including our CEO.





Desiring
      to reinvest as much profit as possible back into the company, our CEO has not
      taken a pay increase since 2003 and our CFO’s salary was not increased from the
      salary paid to him in 2006. In 2007, we granted fully-vested unregistered shares
      of our common stock to our CEO and CFO for the first time in an effort to
      further align of their interests with those of our shareholders. During 2007,
      we
      granted fully-vested unregistered shares to our directors and senior management
      during the fourth quarter. The grants were not made as part of an equity
      compensation plan and are intended as an interim-measure until a more
      fully-developed compensation philosophy and practice can be adopted. We expect
      this to happen during 2008 as we have engaged a human resources consultant
      to
      advise us on development and practice of a compensation philosophy and
      anticipate adopting many of their recommendations.





**Compensation
      Committee Report**





The
      Compensation Committee of the Board of Directors has reviewed the Compensation
      Discussion and Analysis and based this review recommends that it be included
      in
      the annual report on Form-10K for the fiscal year ended December 31, 2007.





Respectfully
      submitted


General
      Steel Holdings, Inc. Board of Directors Compensation Committee


Fred
      Hsu


John
      Wong


Zhongkui
      Cao




40





**Summary
      Compensation Table**





The
      table
      below sets forth all compensation awarded to, earned by or paid to our Chief
      Executive Officer, Chief Financial Officer for the indicated fiscal year. No
      other executive officers received more than $100,000 in total compensation.





**Name
                and Principal Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Stock
                Awards**
              **($)**
            
            **Option
                Awards**
              **($)**
            
            **All
                Other Compensation**
              **($)**
            
            **Total**
              **($)**Zuosheng
                Yu,
              Chief
                Executive Officer
            
            
            2007
              2006
            
            
            79,002
              75,342
            
            
            81,600
            
            
            0
            
            
            0
            
            
            160,602
              75,342John
                Chen,
              Chief
                Financial Officer
            
            
            2007
              2006
            
            
            23,701
              22,603
            
            
            81,600
            
            
            0
            
            
            0
            
            
            105,301
              22,603




During
      2007, we granted fully-vested unregistered shares of our common stock to our
      directors and senior management in the fourth quarter. We made the grant as
      an
      interim incentive measure until we more fully develop a compensation philosophy
      and practice. We are currently working with a human resources consultant and
      expect to implement a more comprehensive compensation policy during
      2008.





**Director
      Compensation**





The
      table
      set forth below sets forth information regarding compensation earned by
      directors, other than our CEO and CFO, as compensation for their service to
      our
      company during the year ended December 31, 2007.





**Name**
            
            **Stock
                Awards**
              **($)**
            
            **Total**
              **($)**Ross
                Warner
            
            
            40,800
            
            
            40,800John
                Wong
            
            
            20,400
            
            
            20,400Qinghai
                Du
            
            
            4,080
            
            
            4,080Zhongkui
                Cao
            
            
            4,080
            
            
            4,080Chris
                Wang
            
            
            0
            
            
            0Danli
                Zhang
            
            
            40,800
            
            
            40,800Fred
                Hsu
            
            
            20,400
            
            
            20,400





Currently,
      we do not pay annual fees to our directors. During 2007, we granted fully-vested
      unregistered shares to our directors in the fourth quarter. We made
      the grant as an interim incentive measure until we more fully develop a
      compensation philosophy and practice. We determined these amounts based on
      level
      of involvement, responsibility and length of service. We are currently working
      with a human resources consultant and expect to implement a more comprehensive
      compensation policy during 2008.




**Compensation
      Committee Interlocks And Insider Participation**




During
      the fiscal year ended December 31, 2007, the members of the Compensation
      Committee were: its Chairman, Fred Hsu, John Wong and Zhongkui Cao. In fiscal
      2007, none of the members of the Compensation Committee was an officer or
      employee of ours or any of our subsidiaries.





**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**




The
      following table sets forth certain information regarding beneficial ownership
      of
      common stock as of March 31, 2008, by:




·
            Each
                person known to us to own beneficially more than 5%, in the aggregate,
                of
                the outstanding shares of our common
                stock;




41




·
            Each
                of our directors;




·
            Each
                of our Chairman and Chief Executive Officer and our other four most
                highly
                compensated executive officers; and




·
            All
                of our executive officers and directors as a
                group.




The
      number of shares beneficially owned and the percent of shares outstanding are
      based on 34,861,365 shares outstanding as of March 31, 2008. Beneficial
      ownership is determined in accordance with the rules of the SEC and generally
      includes voting or investment power with respect to securities.


**Name
                  and address**
              
              **Principal
                  Position Held**
              
              **Shares
                  Owned**
              
              **Percentage****Zuosheng
                  Yu**
                C/o
                  General Steel Holdings, Inc.
                Kuntai International Mansion Building, Suite 2315
                Yi
                  No. 12 Chaoyangmenwai Avenue
                Chaoyang
                  District, Beijing 100020
              
              
              Chief
                  ExecutiveOfficer
                  andChairman
              
              
              23,928,900
              
              
              68.6
              %**Qiang
                  Chen**
                C/o
                  General Steel Holdings, Inc.
                Kuntai International Mansion Building, Suite 2315
                Yi
                  No. 12 Chaoyangmenwai Avenue
                Chaoyang
                  District, Beijing 100020
              
              
              Chief
                  FinancialOfficer
                  and Director
              
              
              150,000
              
              
              ***Ross
                  Warner**
                C/o
                  General Steel Holdings, Inc.
                Kuntai International Mansion Building, Suite 2315
                Yi
                  No. 12 Chaoyangmenwai Avenue
                Chaoyang
                  District, Beijing 100020
              
              
              Director
              
              
              15,000
              
              
              ***Danli
                  Zhang**
                C/o
                  General Steel Holdings, Inc.
                Kuntai International Mansion Building, Suite 2315
                Yi
                  No. 12 Chaoyangmenwai Avenue
                Chaoyang
                  District, Beijing 100020
              
              
              Director
              
              
              10,000
              
              
              ***John
                  Wong**
                C/o
                  General Steel Holdings, Inc.
                Kuntai International Mansion Building, Suite 2315
                Yi
                  No. 12 Chaoyangmenwai Avenue
                Chaoyang
                  District, Beijing 100020
              
              
              Director
              
              
              5,000
              
              
              ***Fred
                  Hsu**
                C/o
                  General Steel Holdings, Inc.
                Kuntai International Mansion Building, Suite 2315
                Yi
                  No. 12 Chaoyangmenwai Avenue
                Chaoyang
                  District, Beijing 100020
              
              
              Director
              
              
              5,000
              
              
              ***Wenbing
                  Wang**
                C/o
                  General Steel Holdings, Inc.
                Kuntai International Mansion Building, Suite 2315
                Yi
                  No. 12 Chaoyangmenwai Avenue
                Chaoyang
                  District, Beijing 100020
              
              
              Director
              
              
              2,500
              
              
              ***Qinghai
                  Du**
                C/o
                  General Steel Holdings, Inc.
                Kuntai International Mansion Building, Suite 2315
                Yi
                  No. 12 Chaoyangmenwai Avenue
                Chaoyang
                  District, Beijing 100020
              
              
              Director
              
              
              1,000
              
              
              ***Zhongkui
                  Cao**
                C/o
                  General Steel Holdings, Inc.
                Kuntai International Mansion Building, Suite 2315
                Yi
                  No. 12 Chaoyangmenwai Avenue
                Chaoyang
                  District, Beijing 100020
              
              
              Director
              
              
              1,000
              
              
              *Directors
                  & Executive Officers as Group
              
              
              
              
              
              24,118,400
              
              
              69.2
              %




(1)
        Beneficial ownership is determined in accordance with Rule 13d-3 under
      the Exchange Act securities and includes securities that are convertible into
      common stock at the owner’s option within 60 days.





*
      indicates percentages that are below 1%.





**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





The
      Company has advances to and from Golden Glister Holdings Limited (“Golden
      Glister”) for short term cash flow purposes. Golden Glister is incorporated in
      the territory of the British Virgin Islands. The Company’s Chairman, CEO and
      majority shareholder, Zuosheng Yu (aka Henry Yu) is the majority shareholder
      of
      Golden Glister. The Company had a receivable from Golden Glister of $850,400
      at
      December 31, 2006 and the Company was repaid in 2007.





The
      Company subleased a portion of its land use rights to Tianjin Jing Qiu Steel
      Market Company, a related party under common control. The Company’s Chairman,
      CEO and majority shareholder, Zuosheng Yu (aka Henry Yu), is the chairman and
      the largest shareholder of Jing Qiu Steel Market Company. Total rental income
      for the years ended December 31, 2007, 2006, and 2005 was $1,587,995,
      $1,439,121, and $0, respectively.





The
      Company’s short term loan of $6,855,000 from Shenzhen Development Bank is
      personally guaranteed by the Company’s Chairman, CEO, and majority
      shareholder Zuosheng Yu (aka Henry Yu).





Tianjin
      Dazhan Industry Co., Ltd. (“Dazhan”) and Tianjin Hengying Trading Co., Ltd.
      (“Hengying”) are steel trading companies controlled by the Company’s Chairman,
      CEO and majority shareholder, Zuosheng Yu (aka Henry Yu). Dazhan and Hengying
      acted as trading agents of the Company to make purchases and sales for the
      Company. For the years ended December 31, 2007 and 2006, through Dazhan and
      Hengying, the Company purchased total of $92,584,791 and $81,888,671 of material
      from these entities, and sold $32,743,626 and $78,849,439 of finished products
      to these entities, respectively.




42





The
      Longmen Joint Venture did not obtain the VAT invoices from the local tax bureau
      until late July 2007. Before obtaining VAT invoices, all the sales and purchases
      made by the joint venture were carried out through the Company’s joint venture
      partner, Longmen Group. In addition to the VAT status issue, the Longmen Joint
      Venture also made sales through Longmen Group for outstanding sales contracts
      signed before June 2007. Also some sales through Longmen Group were made due
      to
      the established market share and its long term relationship with the customers.
      All the sales proceeds and purchase payments were recorded as receivables from
      or payables to Longmen Group. The total receivable from Longmen Group is
      $67,803,956 and the total payable to Longmen Group is $75,758,145. The net
      amount is a payable of $7,954,189 to Longmen Group.





Total
      related party sales amounted to $355,538,568 for the year ended December 31,
      2007.





All
      transactions with related parties are for normal business activities and are
      short term in nature. Settlements for the balances are usually in cash. The
      following charts summarize the related party transactions as of the years ended
      December 31, 2007 and 2006:





a.
            Accounts
                receivable -related parties





As
      of
      December 31, 2007, the Company had a receivable balance of $565,631 due from
      Tianjin Jing Qiu Steel Market Co., Ltd. The Company’s Chairman, CEO and majority
      shareholder, Zuosheng Yu (aka Henry Yu) is a shareholder of Tianjin Jing
      Qiu.





b.
            Short
                term loan receivable - related
                parties





AS
      of
      December 31, 2007, the Company had a short term loan receivable from Tianjin
      Jing Qiu amounted to $1,233,900. This loan was made for short term cash flow
      needs and will be repaid upon request.





c.
            Other
                receivables - related parties





Name
                of related parties
            
            December
                31,
              2007
            
            December
                31,
              2006Golden
                Glister
            
            $
            -
            
            $
            850,400Beijing
                Wendlar
            
            
            1,033,713
            
            
            -Yang
                Pu Capital Automobile
            
            
            616,950
            
            
            -Tianjin
                Jin Qiu Steel Market
            
            
            137,100
            
            
            -Tong
                Xin Ye Jin
            
            
            48,830
            
            
            -Yang
                Pu Sheng Xin
            
            
            74,113
            
            
            -Yang
                Pu Sheng Hua
            
            
            2,742
            
            
            -$
            1,913,448
            
            $
            850,400





d.
            Advances
                on inventory purchases - related
                parties





Name
                of related parties
            
            December
                31,
              2007
            
            December
                31,
              2006Hengying
            
            $
            8,014,211
            
            $
            -Dazhan
            
            
            1,929,801
            
            
            -$
            9,944,012
            
            $
            -





e.
            Prepaid
                expenses - related parties





During
      2007, the Company prepaid rental fee for employee dormitory to a related party,
      Beijing Wendlar, a company controlled by Mr. Zuosheng Yu (aka Henry Yu). As
      of
      December 31, 2007, the Company had a balance of the prepayment of $191,823,
      in
      which $49,356 was current and $142,467 was classified as non current.




43





f.
            Accounts
                payable due to related parties





Name
                of related parties
            
            December
                31,
              2007
            
            December
                31,
              2006Longmen
                Group
            
            $
            7,954,189
            
            $
            -Dazhan
            
            
            4,249,395
            
            
            -Henan
                Xinmi Kanghua
            
            
            356,567
            
            
            -Zhengzhou
                Shenglong
            
            
            269,917
            
            
            -Baotou
                Shengda Steel Pipe
            
            
            1,472,670
            
            
            -$
            14,302,738
            
            $
            -





g.
            Short
                term loan due to related parties





Name
                of related parties
            
            December
                31,
              2007
            
            December
                31,
              2006HanCheng
                TongXing
            
            $
            7,317,027
            
            $
            -





h.
            Other
                payables due to related parties





Name
                of related parties
            
            December
                31,
              2007
            
            December
                31,
              2006Beijing
                Wandlar
            
            $
            34,275
            
            $
            -Tianjin
                Jin Qiu Steel Market
            
            
            1,487,600
            
            
            -Hengying
            
            
            563,816
            
            
            -Baotou
                Shengda Steel Pipe
            
            
            31,095
            
            
            -Baogang
                Jian An
            
            
            9,597
            
            
            -$
            2,126,383
            
            $
            -





i.
            Customer
                deposits - related parties





Name
                of related parties
            
            December
                31,
              2007
            
            December
                31,
              2006Hengying
            
            $
            6,855,000
            
            $
            -Haiyan
            
            
            2,356,736
            
            
            -$
            9,211,736
            
            $
            -




Transactions
      with related parties are as follows:





(a)
            Sales
                of goods





Name
                of related parties
            
            Year
                ended
              December
                31,
              2007
            
            Year
                ended
              December
                31,
              2006
            
            Year
                ended
              December
                31,
              2005Shaanxi
                Longmen Steel Group
            
            $
            355,538,568
            
            $
            -
            
            $
            -$
            355,538,568
            
            $
            -
            
            $
            -




44


(b)
            Purchase
                of goods





Name
                of related parties
            
            Year
                ended
              December
                31,
              2007
            
            Year
                ended
              December
                31,
              2006
            
            Year
                ended
              December
                31,
              2005Shaanxi
                Longmen Iron and Steel Group Co., Ltd.
            
            $
            175,380,794
            
            $
            -
            
            $
            -$
            175,380,794
            
            $
            -
            
            $
            -





(c)
            Rental
                income





Name
                of related parties
            
            Year
                ended
              December
                31,
              2007
            
            Year
                ended
              December
                31,
              2006
            
            Year
                ended
              December
                31,
              2005Tianjin
                Jing Qiu Steel Market Co., Ltd.
            
            $
            1,580,040
            
            $
            1,439,121
            
            $
            -$
            1,580,040
            
            $
            1,439,121
            
            $
            -





**ITEM
      14. Principal Accounting Fees and Services.**





The
      Board
      has reappointed Moore Stephens Wurth Frazer and Torbet, LLP as the Company's
      independent auditors for the year ended December 31, 2008.





Public
      Accountants' Fees





2007
            
            2006Audit
                fees
            
            $
            805,000
            
            $
            180,000Audit
                related fees
            
            $
            -
            
            $
            -Tax
                fees
            
            $
            5,000
            
            $
            7,000All
                other fees
            
            $
            -
            
            $
            -





Audit
      fees were for professional services rendered by Moore Stephens Wurth Frazer
      and
      Torbet, LLP during 2007 and 2006 for the audit of our annual financial
      statements and the review of our financial statements included in our quarterly
      reports form 10-Q and services that are normally provided by Moore Stephens
      Wurth Frazer and Torbet, LLP in the connection with the statutory and regulatory
      filings. Tax fees involved the preparation of our consolidated tax
      returns.





**PART
      IV**





**ITEM
      15. EXHIBITS**





1.1  Baotou
      Steel - GSHI Special Steel Joint Venture Agreement dated as of September 28,
      2005 by and between Baotou Iron & Steel (Group) Co., Ltd., General Steel
      Investment Co., Ltd. and Daqiuzhuang Metal Sheet Co., Ltd. (Incorporated by
      reference to the current report on Form 8-K, filed with the Commission on
      October 31, 2005)




2.1  Agreement
      and Plan of Merger dated as of October 14, 2004 by and among American
      Construction Company, General Steel Investment Co., Ltd. and Northwest Steel
      Company, a Nevada corporation (Incorporated by reference to the current report
      on Form 8-K/A, filed with the Commission on October 19, 2004)




45




3.1  Articles
      of Incorporation of General Steel Holdings, Inc. (Incorporated by reference
      to
      the registration statement on Form SB-2, filed with the Commission on June
      6,
      2003)




4.1  Subscription
      Agreement (Incorporated by reference to the registration statement on Form
      SB-2/A, filed with the Commission on September 12, 2003)




10.1  Form
      of
      Securities Purchase Agreement (Incorporated by reference to the registration
      statement on Form 8-K/A, filed with the Commission on December 14,
      2007)




10.2  Form
      of
      Registration Rights Agreement (Incorporated by reference to the registration
      statement on Form 8-K/A, filed with the Commission on December 14,
      2007)




10.3  Form
      of
      Warrant (Incorporated by reference to the registration statement on Form 8-K/A,
      filed with the Commission on December 14, 2007)




10.4  Form
      of
      Convertible Note (Incorporated by reference to the registration statement on
      Form 8-K, filed with the Commission on December 14, 2007)


10.5
        Form
        DEF 14C (Incorporated by reference to the registration statement on Form
        DEF
        14C, filed with the Commission on June 25, 2007).
 
 10.6
        Certificate of Designation dated August 15, 2007.


21.01
      Subsidiaries of the registrant





31.1
      Certification of Chief Executive Officer;





31.2
      Certification of Chief Financial Officer;





32.1
      Certification of Chief Executive Officer; and





32.2
      Certification of Chief Financial Officer.




46




SIGNATURES





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




GENERAL
              STEEL
              HOLDINGS, INCBy:
            /s/ Zuosheng
              YuName: Zuosheng Yu
              Title:
                Chief Executive Officer and Chairman
              Date:
                March 31, 2008




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




SIGNATURE
              
              TITLE
              
              DATE/s/
                  Zuosheng Yu
              
              Chief
                  Executive Officer and Chairman
              
              March
                  31, 2008Zuosheng
                  Yu/s/
                  John Chen
              
              Director
                  and Chief Financial Officer
              
              March
                  31, 2008John
                  Chen/s/
                  Zhongkui Cao
              
              Director
              
              March
                  31, 2008Zhongkui
                  Cao/s/
                  Qinghai Du
              
              Director
              
              March
                  31, 2008Qinghai
                  Du/s/
                  Fred Hsu
              
              Director
              
              March
                  31, 2008Fred
                  Hsu/s/
                  Ross Warner
              
              Director
              
              March
                  31, 2008Ross
                  Warner/s/
                  Chris Wang
              
              Director
              
              March
                  31, 2008Chris
                  Wang/s/
                  John Wong
              
              Director
              
              March
                  31, 2008John
                  Wong/s/
                  Danli Zhang
              
              Director
              
              March
                  31, 2008Danli
                  Zhang
  47